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Excrept from filing document 2024-04-30

Indicate by checkmark whether the registrant has filed a report on and attestation to its management s assessment of the effectiveness of its internal control over financial reporting under Section 404 b of the Sarbanes Oxley Act 15 U S C 7262 b by the registered public accounting firm that prepared or issued its audit report
Certain sections of the registrant s definitive Proxy Statement to be filed in connection with its Annual Meeting of Shareholders to be held on August 14 2024 are incorporated by reference into Part III of this Annual Report on Form 10 K
The J M Smucker Company Company registrant we us or our often referred to as Smucker s a registered trademark was established in 1897 and incorporated in Ohio in 1921 We operate principally in one industry the manufacturing and marketing of branded food and beverage products on a worldwide basis although the majority of our sales are in the United States U S Operations outside the U S are principally in Canada although our products are exported to other countries as well Net sales outside the U S subject to foreign currency translation represented 5 percent of consolidated net sales for 2024 Our branded food and beverage products include a strong portfolio of trusted iconic market leading brands that are sold to consumers primarily through retail outlets in North America
We have four reportable segments U S Retail Coffee U S Retail Frozen Handheld and Spreads and U S Retail Pet Foods the U S retail market segments and Sweet Baked Snacks These segments in total comprised 85 percent of consolidated net sales in 2024 and represent a major portion of our strategic focus the sale of branded food and beverage products with leadership positions to consumers through retail outlets in North America Additionally we sell products both domestically and in foreign countries through retail channels and foodservice distributors and operators through the Sweet Baked Snacks segment and the combined International and Away From Home operating segments During 2024 the historical U S Retail Consumer Foods reportable segment was renamed to U S Retail Frozen Handheld and Spreads however there was no change to the manner in which the segment was previously presented For additional information on our reportable segments see Note 5 Reportable Segments
pickled onions brands inclusive of certain trademarks Under our ownership these brands generated net sales of 43 8 61 6 and 62 7 in 2024 2023 and 2022 respectively which were included in the International operating segment
brands as well as the private label pet food business inclusive of certain trademarks and licensing agreements manufacturing and distribution facilities in Bloomsburg Pennsylvania manufacturing facilities in Meadville Pennsylvania and Lawrence Kansas and approximately 1 100 employees who supported these pet food brands Under our ownership these brands generated net sales of 1 5 billion and 1 4 billion in 2023 and 2022 respectively primarily included in the U S Retail Pet Foods segment
manufacturing and distribution facilities in Chico California and Havre de Grace Maryland and approximately 150 employees who supported the natural beverage and grains businesses The transaction did not include
On December 1 2021 we sold the private label dry pet food business to Diamond Pet Foods Inc Diamond Pet Foods The transaction included dry pet food products sold under private label brands a dedicated manufacturing facility located in Frontenac Kansas and approximately 220 employees who supported the private label dry pet food business The transaction
In 2024 our principal products were coffee pet snacks peanut butter cat food frozen handheld products sweet baked goods fruit spreads portion control products baking mixes and ingredients toppings and syrups dog food and cookies Product sales information for the years 2024 2023 and 2022 is included within Note 5 Reportable Segments
Products within our U S retail market segments are primarily sold through a combination of direct sales and brokers to food retailers club stores discount and dollar stores online retailers pet specialty stores drug stores military commissaries mass merchandisers and distributors The Sweet Baked Snacks segment includes products distributed across all channels both domestically and in foreign countries such as supermarket chains national mass retailers convenience stores club stores discount and dollar stores drug stores and the vending channel International and Away From Home includes the sale of all products that are distributed in foreign countries through retail channels as well as domestically and in foreign countries through foodservice distributors and operators e g healthcare operators restaurants educational institutions offices lodging and gaming establishments and convenience stores
The raw materials used in each of our segments are primarily commodities agricultural based products and packaging materials Green coffee peanuts oils and fats flour sugar fruit and other ingredients are obtained from various suppliers The availability quality and costs of many of these commodities have fluctuated and may continue to fluctuate over time partially driven by the elevated commodity and supply chain costs we have continued to experience in 2024 We actively monitor changes in commodity and supply chain costs and to mitigate the fluctuation of costs we may be required to implement material price increases or decreases across our business Futures basis options and fixed price contracts are used to manage price volatility for a significant portion of our commodity costs Green coffee along with certain other raw materials is sourced solely from foreign countries and its supply and price is subject to high volatility due to factors such as weather global supply and demand product scarcity plant disease investor speculation geopolitical conflicts including the ongoing conflicts between Russia and Ukraine and Israel and Hamas changes in governmental agricultural and energy policies and regulations and political and economic conditions in the source countries We source peanuts protein meals and oils and fats mainly from North America The principal packaging materials we use are plastic glass metal cans caps carton board and corrugate
For additional information on the commodities we purchase see Commodities Overview within Management s Discussion and Analysis of Financial Condition and Results of Operations in this Annual Report on Form 10 K
dog snacks and liquid coffee from primary or single sources of supply pursuant to long term contracts While availability may vary year to year we have not historically encountered significant shortages of key raw materials and we believe that we will continue to obtain adequate supplies We consider our relationships with key raw material suppliers to be in good standing
Many of our products are produced and sold under various patents and patents pending and marketed under trademarks owned or licensed by us or one of our subsidiaries Our major trademarks as of April 30 2024 are listed below
restaurants The terms of the Dunkin Licenses include the payment of royalties to an affiliate of DD IP Holder LLC and other financial commitments by the Company The Dunkin Licenses are in effect until January 1 2039 Keurig
The U S retail market segments do not experience significant seasonality as demand for our products is generally consistent throughout the year However the Sweet Baked Snacks segment does experience moderate seasonality with declines during the early winter period due to the holiday season
Sales to Walmart Inc and subsidiaries amounted to 33 percent of net sales in 2024 and 34 percent in both 2023 and 2022 These sales are primarily included in our U S retail market segments No other customer exceeded 10 percent of net sales for any year
During 2024 our top 10 customers collectively accounted for approximately 60 percent of consolidated net sales Supermarkets warehouse clubs and food distributors continue to consolidate and we expect that a significant portion of our revenues will continue to be derived from a limited number of customers Although the loss of any large customer for an extended length of time could negatively impact our sales and profits we do not anticipate that this will occur to a significant extent due to strong consumer demand for our brands
We are the branded market leader in the coffee dog snacks peanut butter frozen snacks and sandwiches and fruit spreads categories in the U S In Canada we are the branded market leader in the flour fruit spreads canned milk and ice cream toppings categories
In order to remain competitive companies in the food industry need to consider emerging consumer preferences technological advances product and packaging innovations and the growth of certain retail channels such as the
e commerce market The primary ways in which products and brands are distinguished include brand recognition product quality price packaging new product introductions nutritional value convenience advertising promotion and the ability to identify and satisfy consumer preferences Positive factors pertaining to our competitive position include well recognized brands high quality products consumer trust experienced brand and category management varied product offerings product innovation responsive customer service and an integrated distribution network
The packaged foods industry has been challenged by a general long term decline in sales volume in the center of the store Certain evolving consumer trends have contributed to the longer term decline such as a heightened focus on health and wellness an increased desire for fresh foods and the growing impact of social media and e commerce on consumer behavior To address these dynamics we continue to focus on innovation with an increased emphasis on products that satisfy evolving consumer trends However in recent years there has been an increase in sales primarily driven by changes in consumer behaviors including employees working at home more frequently
In addition private label continues to be a competitor in the categories in which we compete partially due to improvements in private label quality the increased emphasis of store brands by retailers in an effort to cultivate customer loyalty and a movement toward lower priced offerings during economic downturns or instances of increased inflationary pressures For the U S retail market segments private label held a 13 7 dollar average market share during the 52 weeks ended April 21 2024 for the categories in which we compete as compared to a 12 1 dollar average market share during the same period in the prior
year Within the Sweet Baked Snacks segment private label held a 6 8 dollar average market share during the 52 weeks ended April 27 2024 for the categories in which we compete We believe that both private label and leading brands play an important role in the categories in which we compete appealing to different consumer segments We closely monitor the price gap or price premium between our brands and private label brands with the view that value is about more than price and the expectation that number one brands will continue to be an integral part of consumers shopping baskets
Our operations are subject to various regulations and laws administered by federal state and local government agencies in the U S including the U S Food and Drug Administration the FDA U S Federal Trade Commission U S Departments of Agriculture Commerce and Labor and U S Environmental Protection Agency Additionally we are subject to regulations and laws administered by government agencies in Canada and other countries in which we have operations and our products are sold In particular the manufacturing marketing transportation storage distribution packaging disposal and sale of food products are each subject to governmental regulation that is increasingly extensive Governmental regulation encompasses such matters as ingredients including whether a product contains bioengineered ingredients packaging and disposal of packaging labeling including use of certain terms such as sugar free healthy low sodium and low fat pricing advertising relations with distributors and retailers health safety data privacy and security and anti corruption as well as an increased focus regarding environmental policies relating to climate change regulating greenhouse gas emissions energy and sustainability including single use plastics We are subject to tax and securities regulations accounting and reporting standards and other financial laws and regulations We rely on legal and operational compliance programs including in house and outside counsel to guide our business in complying with applicable laws and regulations of the countries in which we do business We believe we are in compliance with such laws and regulations and do not expect continued compliance to have a material impact on our capital expenditures earnings or competitive position in 2025
Compliance with environmental regulations and prioritizing our environmental sustainability efforts are important to us as a responsible corporate citizen As such we have public goals related to waste diversion water usage energy usage greenhouse gas emissions and sustainable packaging In support of our commitment to environmental sustainability we have implemented and manage a variety of programs across our operations including energy optimization utilization of renewable energy water conservation recycling and in our supply chains we support projects that increase sustainable practices We continue to evaluate and modify our processes to further limit our impact on the environment
serve as the foundation for everything we do as an organization and are clear concise and actionable to help our employees continue to bring our unique culture to life as our employees are among our most important resources Our employees are critical to our success as a company and we are committed to supporting them holistically both personally and professionally With almost 9 000 full time employees worldwide every employee makes a difference to our Company We believe it is critical that we have an inclusive and diverse environment and that we take proactive steps to ensure we are enabling our employees to reach their full potential To hold ourselves accountable we conduct an employee engagement survey annually to provide an opportunity for open and confidential feedback from our employees and to help guide our organization priorities for the upcoming fiscal year Additionally we conduct functional pulse surveys as needed to gain additional information based on responses to the larger engagement survey or in sub groups of our employee population where a specific topic or question may be needed These surveys are supplemented by regular Company Town Halls which help to foster an environment of transparency and two way communication Employees also have the opportunity to anonymously report violations of the Commitment to Integrity Our Code Code of Conduct or complaints regarding accounting auditing and financial related matters through our Smucker Voice Line the Integrity Portal Portal The Portal also can be utilized by customers contractors vendors and their employees as well as any others in a business relationship with our Company To further support our commitment to ethics and our basic belief
our employees are also asked to participate in Ethics and Compliance Surveys to help us understand our strengths and identify opportunities for future ethics and compliance programs and training We track our progress in the Ethics and Compliance space through ongoing assessments of our internal programs and through our Ethics and Compliance Survey as well as through dedicated questions included in our annual Employee Engagement Survey and we are pleased to share that our Company was recognized in 2024 as one of the World s Most Ethical Companies by Ethisphere
Additional information regarding our human capital management is available in our 2023 Corporate Impact Report that can be found on our website at www jmsmucker com news stories corporate publications Information on our website including our 2023 Corporate Impact Report is not incorporated by reference into this Annual Report on Form 10 K
We are diligent in ensuring workforce health and safety through education and training which is provided at all locations Our health and safety internal assessments conducted at each of our production facilities quarterly as well as periodic external assessments confirm our compliance with safety regulations and corporate policies The teams document the results and determine corrective actions to ensure we hold ourselves accountable for providing a safe work environment During 2024 we achieved a total recordable incident rate that is four times below the national average for our industry peers as a result of these efforts
As part of our focus on well being we emphasize the need for our employees to embrace healthy lifestyles We offer all employees a variety of free and discounted services as well as educational opportunities to support their physical emotional and financial well being including free sessions through our Employee Assistance Program We also offer onsite conveniences such as health and wellness centers at several of our locations and a Child Development Center at our corporate headquarters in Orrville Ohio In addition we provide our employees with paid time off to renew and programs to promote workplace flexibility
Further we have continued to promote the importance of self care and the availability of mental health resources to our employees In recognition of the need for mental health resources across society we have partnered with the National Alliance on Mental Health to provide support for our employees and communities Their mental health services and self care programs benefit our employees by raising awareness and providing additional support and education for mental health Additionally in 2024 we partnered with The Village Network on their Early Childhood Mental Health initiatives This commitment will provide access to important mental health and educational services for families and their children from birth to age five and will be provided by Therapeutic Childcare Centers
by establishing measurable expectations for participation in select employee resource group ERG sponsored events and education and the development of integrated strategy aspirations and prioritized initiatives across our ERGs
In support of these aspirations we have made important progress on our commitment to create an environment where our employees are supported and differences are truly celebrated We have successfully introduced ERGs which are all voluntary employee led groups that represent a unique community The purpose of these groups is to create inclusion where all can see themselves and feel a part of our Company We have eight ERGs as well as our Advocate Alliance group to support employees and encourage allyship Our ERGs include BLAC Black Leadership and Ally Council PRIDE Alliance i e LGBTQ GROW Greater Resources and Opportunities for Women RAICES i e Latino a x and Hispanic contributions AFVA Armed Forces Veterans and Allies CAPIA Community of Asians Pacific Islanders and Allies ADDAPT Advocating for Disabilities and Diverse Abilities by Partnering Together and YP Young Professionals which all employees are encouraged to join as either a member or ally Additionally we have coordinated more than 10 000 hours of employee programming on education and understanding hosted panels to reflect the unique experiences of underrepresented groups to increase employee awareness while encouraging empathy and allyship and published regular content to celebrate our differences and increase understanding
We approach diversity from the top down exemplified by our Board of Directors the Board where 4 of 10 directors are women and 3 of 10 directors are racially or ethnically diverse Additionally 43 percent of our executive and senior management team members are women inclusive of 3 of 6 members of our Executive Leadership Team and 13 percent of our salaried workforce is racially or ethnically diverse We recognize we have work to do to ensure a more inclusive and diverse organization which is why we are improving our recruiting hiring and retention programs at all levels within our Company To further these efforts we established human resource positions focused on improving our diversity and inclusion specifically within talent acquisition recruiting and organization development A portion of our annual cash incentive awards for our Company Leadership Team which consists of all employees at or above the Senior Director level is based on the achievement of our environmental social and governance objectives which include our ID E efforts
Further we have partnered with the Akron Urban League the Urban League of Greater Cleveland the Equal Justice Initiative the Human Rights Campaign and the NAACP Legal Defense and Educational Fund to further our commitment to this cause and have committed more than 680 000 to these partners as part of multi year partnerships These organizations advocate for inclusion racial justice and the advancement of underrepresented and vulnerable people To ensure ongoing progress against our commitments we are evaluating our success through several measures including reviews of organization health assessments evaluation of workforce composition and minority representation across all levels of the organization and successful integration of key programming In addition to further support our ERGs and charitable giving efforts we have donated a combined 375 000 in 2024 and 2023 to support organizations that align and are supported by our ERGs
During calendar year 2023 due to our increased efforts to support diversity and inclusion our Corporate Equality Index CEI from the Human Rights Campaign was 100 out of 100 points which increased from 95 in calendar year 2022 Specifically we were able to increase the CEI index through enhancements to our transgender inclusive health benefits philanthropic contributions to and partnerships with LGBTQ organizations pledging our support of the Human Rights Campaign s Business Coalition for the Equality Act enhancement of charitable giving guidelines to prohibit philanthropic support of organizations with an explicit policy of sexual orientation and gender identity discrimination having a supplier diversity program that includes the outreach to LGBTQ owned businesses and the establishment of the PRIDE Alliance ERG
We support and challenge our employees to increase their knowledge skills and capabilities through all phases of their career We believe that we offer one of the best cultures in the food industry along with numerous learning and development opportunities to support a long and prosperous career Our Employee Development programs offer foundational instruction on Company culture and provide employees additional learning opportunities throughout their careers to help them reach their full potential This is reflected in annual reviews which allow management and employees to partner and determine specific opportunities for growth within each role through important work new experiences generated through a dynamic environment regular feedback and purposeful development opportunities Building a career at our Company is fundamental to who we are and is evidenced by our Executive Leadership Team where 4 of 6 members were promoted from within and our trailing 12 month turnover remains below the industry average While the current labor market presents significant challenges for employers we have made differential investments in our talent acquisition tools and programs to help us continue to attract the right candidates
In addition we are committed to providing the tools and resources our employees need to learn develop and grow with us including virtual sessions A suite of online training and education programs is available to our employees ranging from role specific training to education on soft skills and our Company culture Through these tools and resources in 2024 we coordinated over 19 000 hours of professional development training for our employees Our best in class Discovering the Art of Leadership series developed in collaboration with Case Western Reserve University teaches our people managers how to effectively lead teams and develop employees We dedicate time to developing and coaching our people managers to provide support to our employees holistically This means promoting resonant leadership and the practice of emotional intelligence and mindfulness so our people managers have the knowledge and tools to support the unique needs of each employee
Fostering an environment for growth and continuous learning for our employees is an important priority of our Company However our commitment to education also includes our communities as evidenced by our partnerships with organizations passionate about improving access to quality education We have partnered with Akron Children s Hospital to launch the Berry Good Reading Program which provides books to children during annual well visits We also continue to support our long time partners including the Boys Girls Clubs of America
brand continues to sponsor the El Café del Futuro Scholarship a program that invests in the Latino community by awarding scholarships to college students at HACU member institutions seeking a better future for themselves their families and their communities To date 800 000 in college funds have been awarded to 160 HACU Latino students nationwide
we believe in paying for performance and compensating our employees at market competitive rates and utilizing performance based awards to support the overall well being of our employees Additionally we employ an incentive program for eligible participants to reward both shared Company results and strong individual performance Our Total Rewards program offers competitive comprehensive benefits to meet the unique needs of each employee at each life stage including insurance coverage options for domestic partners in addition to married couples and a retirement savings program with a Company match Our rewards program also addresses the holistic needs of our employees by supporting their physical well being providing tools and resources to help them actively take responsibility share in the cost and make the best decisions regarding their personal well being These programs provide resources that respond to their changing needs throughout their careers including access to our Child Development Center tuition assistance pet insurance paid bereavement leave and expanded parental leave for both parents Additionally our approach to paid time off is competitive with our industry peers which includes at least three weeks of paid time off and increases based on an employee s tenure 12 paid Company holidays per calendar year including a floating holiday which can be used at the employee s discretion to observe and celebrate occasions that align with their personal interests and beliefs 12 weeks of parental leave in addition to short term disability available to birth mothers and pet bereavement leave Our Total Rewards benefits package includes advocacy resources to help LGBTQ employees navigate obstacles and identify LGBTQ knowledgeable providers In addition our family building benefits support the desire for all aspiring parents to build their family through enhanced fertility benefits through a third party partner as well as enhanced adoption and surrogacy financial support
To that end we conduct a pay equity analysis each year and with the support of our Compensation and People Committee make necessary adjustments to make sure that similarly situated employees are paid equitably
Lastly we have an established working hours policy to clarify shared expectations but continue to review the professional environment to determine how to effectively manage it As we looked at how to address the evolving workplace at our Company it was important to us to deliver on our employees needs and expectations while enabling collaboration and supporting continued productivity to deliver our business objectives To realize this our corporate workplace model is focused on the idea of presence with purpose We plan around core weeks typically two weeks per month where we encourage employees to be in office two to three days per week To us true flexibility is not simply establishing a specific number of days in the office and we have approached the development of our model based on guiding principles Employees have shared an appreciation for the balance providing them the flexibility they desire with the consistent opportunity to engage with colleagues in person which also remains important to them While we are pleased with the results of the working hours policy to date we will continue to evaluate it
Through our many partnerships we are able to understand the needs and support required within our local communities and leverage these relationships to make the connections necessary to offer this critical assistance With our partners including the American Red Cross
we have donated more than 1 5 million to support the communities where we live and work We have supported the LeBron James Family Foundation and its work with the I PROMISE School including helping supply the school s onsite food pantry donating funds to the school s library and the development of the I PROMISE School s Smucker Hometown Hall In addition to our work to support those in the communities where we live and work we believe it is important that we help facilitate business success globally and are proud that our employees share in this belief Through our relationship with Partners in Food Solutions and TechnoServe
we have opened up skills based employee volunteer opportunities to our workforce allowing our people to share their talents and expertise with companies that work to help provide a secure and consistent food supply for families in Africa
We are fortunate to have the expertise and passion of talented employees who help us deliver high quality products to our customers and consumers across North America and who share our commitment to ensure that people pets and communities where we live and work have access to the support and essential resources they need We believe it is important to celebrate their contributions including recognizing organizations about which they are especially passionate One way we do this is through our Company Matching Gift Program which gives employees the opportunity to donate to partner charities and have their donation matched by the Company dollar for dollar from a minimum of 5 up to a maximum of 2 500 per calendar year per employee In addition each year we offer employees the opportunity to nominate the organizations most important to them to be added to the program Furthermore the Company Matching Gift Program credits our employees Smucker Giving accounts for each hour of volunteering done for a non profit charity and these funds can be donated to an approved charity of the employee s choice
Mr Brase was elected to his present position in April 2020 having previously served at The Procter Gamble Company P G for 30 years He was the Vice President and General Manager of P G s North American Family Care business from April 2016 through March 2020
Ms Knudsen was elected to her present position in September 2022 having served as Chief Legal and Compliance Officer and Secretary since November 2019 Prior to that time she served as Senior Vice President General Counsel and Secretary since May 2016
Mr Marshall was elected to his present position in May 2020 having served as Senior Vice President and Deputy Chief Financial Officer since November 2019 Prior to that time he served as Vice President Finance since May 2016
Ms Penrose was elected to her present position in March 2023 having served as Chief People and Administrative Officer since November 2019 Prior to that time she served as Senior Vice President Human Resources and Corporate Communications since May 2016
Access to all of our Securities and Exchange Commission SEC filings including our Annual Report on Form 10 K quarterly reports on Form 10 Q current reports on Form 8 K and amendments to those reports filed or furnished pursuant to Section 13 a or 15 d of the Securities Exchange Act of 1934 as amended the Exchange Act is provided free of charge on our website investors jmsmucker com sec filings as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC
Our business operations and financial condition are subject to various risks and uncertainties The following risk factors should be carefully considered together with the other information contained or incorporated by reference in this Annual Report on Form 10 K and our other filings with the SEC in connection with evaluating the Company our business and the forward looking statements contained in this Annual Report Although the risks are organized and described separately many of the risks are interrelated Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may affect us The occurrence of any of these known or unknown risks could have a material adverse impact on our business financial condition and results of operations
Deterioration of national and global macroeconomic conditions an economic recession or slow growth periods of inflation or economic uncertainty in key markets may adversely affect consumer spending and demand for our products
National and global macroeconomic conditions can be uncertain and volatile We have in the past been and may continue to be adversely affected by changes in national and global macroeconomic conditions such as inflation rising interest rates tax rates availability of capital markets consumer spending rates energy availability and costs supply chain challenges labor shortages geopolitical conflicts including the ongoing conflicts between Russia and Ukraine and Israel and Hamas
Volatility in financial markets and deterioration of national and global macroeconomic conditions could impact our business and results of operations in a number of ways including but not limited to the following
an impairment in the carrying value of goodwill other intangible assets or other long lived assets or a change in the useful life of finite lived intangible assets could occur if there are sustained changes in consumer purchasing behaviors government restrictions financial results or a deterioration of macroeconomic conditions
These and other impacts of global and national macroeconomic conditions could also heighten many of the other risk factors discussed in this section Our sensitivity to economic cycles and any related fluctuation in consumer demand could negatively impact our business results of operations financial condition and liquidity
Our operations are subject to the general risks associated with acquisitions divestitures and restructuring programs Specifically we may not realize all of the anticipated benefits of the acquisition of Hostess Brands or those benefits may take longer to realize than expected We may also encounter significant unexpected difficulties in integrating the Hostess Brands business and
Our stated strategic vision is to engage delight and inspire consumers by building brands they love and leading in growing categories We have historically made strategic acquisitions of brands and businesses and intend to do so in the future in support of this strategy If we are unable to complete acquisitions or successfully integrate and develop acquired businesses including the effective management of integration and related restructuring costs we could fail to achieve the anticipated synergies and cost savings or the expected increases in revenues and operating results Additional acquisition risks include the diversion of management attention from our existing business potential loss of key employees suppliers or consumers from the acquired business assumption of unknown risks and liabilities and greater than anticipated operating costs of the acquired business Any of these factors could have a material adverse effect on our financial results
the anticipated benefits of the acquisition of Hostess Brands will depend to a large extent on our ability to integrate the Hostess Brands business into our Company The combination of two independent businesses is a complex costly and time consuming process As a result we will be required to devote significant management attention and resources to integrating Hostess Brands business practices and operations The integration process may disrupt the businesses and if implemented ineffectively or if impacted by unforeseen negative economic or market conditions or other factors we may not realize the full anticipated benefits of the acquisition Our failure to meet the challenges involved in integrating the two businesses and to realize the anticipated benefi
ts of the acquisition could cause an interruption of or a loss of momentum in our activities and could adversely affect our results of operations or cash flows cause dilution to our earnings per share decrease or delay any accretive effect of the transactions and negatively impact the price of our common shares
and Canada condiment businesses as well as past divestitures of certain pet food brands the natural beverage and grains and private label dry pet food businesses among others and we may continue to do so in the future If we are unable to complete divestitures or successfully transition divested businesses including the effective management of the related separation and stranded overhead costs transition services and the maintenance of relationships with customers suppliers and other business partners our business and financial results could be negatively impacted Further we may incur asset impairment charges related to divestitures that reduce our profitability Divestitures and related restructuring and integration costs require a significant amount of management and operational resources These additional demands could divert management s attention from core business operations potentially adversely impacting existing business relationships and employee morale resulting in negative impacts on our financial performance For more information see Note 2 Acquisition
Further associated with the divestiture of certain pet food brands we entered into a contract manufacturing agreement with Post that will continue into 2025 As a result a portion of net sales within the pet food product categories is associated with this agreement Any change to this agreement could affect our operating results For more information see Note 5 Reportable Segments
Our proprietary brands packaging designs and manufacturing methods are essential to the value of our business and the inability to protect our intellectual property could harm the value of our brands and adversely affect our sales and profitability
The success of our business depends significantly on our brands know how and other intellectual property We rely on a combination of trademarks service marks trade secrets patents copyrights licensing agreements and similar rights to protect our intellectual property The success of our growth strategy depends on our continued ability to use our existing trademarks and service marks in order to maintain and increase brand awareness and further develop our brands If our efforts to protect our intellectual property are not adequate such as in the event of a cybersecurity incident if any third party misappropriates or infringes on our intellectual property or if we are alleged to be misappropriating or infringing on the intellectual property rights of others the value of our brands may be harmed which could have a material adverse effect on our business From time to time we are engaged in litigation to protect our intellectual property which could result in substantial costs as well as diversion of management attention
In particular we consider our proprietary coffee roasting methods essential to the consistent flavor and richness of our coffee products and therefore essential to our coffee brands Because many of the roasting methods we use are considered our trade secrets and not protected by patents it may be difficult for us to prevent competitors from copying our coffee products if such coffee roasting methods are independently discovered or become generally known in the industry We also believe that our packaging innovations such as our
frozen sandwiches which we believe are essential to producing high quality sandwiches that consistently meet consumer expectations Since the current methods used in making our sandwiches are considered our trade secrets and not protected by patents it may be difficult for us to prevent competitors from copying our sandwiches if such sandwich making methods are independently discovered or become generally known in the industry If our competitors copy or develop more advanced coffee roasting or packaging or sandwich making methods the value of our coffee products or
trademarks are owned by third parties and licensed to us These trademarks are renegotiated and renewed pursuant to their terms and if in the future we are unable to renew or fail to renegotiate the licensing arrangements then our financial results could be materially and negatively affected
dog snacks and liquid coffee from primary or single sources of supply While we believe that except as set forth below alternative sources of these raw materials and finished goods could be obtained on commercially reasonable terms loss or an extended interruption in supplies from a primary or single source supplier would result in additional costs could have a disruptive short term effect on our business and could adversely affect our results of operations
brewing system In addition JDE Peet s N V JDE Peet s is our single source supplier for liquid coffee for our Away From Home business and there are a limited number of manufacturers other than JDE Peet s that are able to manufacture liquid coffee Further Graham Packaging Company L P Graham Packaging is our single source supplier for the packaging of our
coffee products respectively to us for any reason it could be difficult to find an alternative supplier for such goods on commercially reasonable terms which could have a material adverse effect on our results of operations
cookies and fruit spreads We could experience a production disruption at these or any of our manufacturing sites resulting in a reduction or elimination of the availability of some of our products If we are not able to obtain alternate production capability in a timely manner our business financial condition and results of operations could be adversely affected
Our ability and the ability of our third party suppliers service providers distributors and contract manufacturers to manufacture distribute and sell products is critical to our success A significant interruption in the operation of any of our manufacturing or distribution capabilities or the manufacturing or distribution capabilities of our suppliers distributors or contract manufacturers or a service failure by a third party service provider whether as a result of adverse weather conditions or a natural disaster fire or water availability as a result of climate change or otherwise work stoppage or labor shortages cybersecurity breaches political instability terrorism or geopolitical conflicts including the ongoing conflicts between Russia and Ukraine and Israel and Hamas pandemic illness government restrictions or other causes could significantly impair our ability to operate our business In particular substantially all of our coffee production takes place in New Orleans Louisiana and is subject to risks associated with hurricane and other weather related events and some of our production facilities are located in places where tornadoes or wildfires can frequently occur such as Alabama Kansas Arkansas and California Failure to take adequate steps to mitigate or insure against the likelihood or potential impact of such events or to effectively manage such events if they occur could adversely affect our business financial condition and results of operations While we insure against many of these events and certain business interruption risks and have policies and procedures to manage business continuity planning such insurance may not compensate us for any losses incurred and our business continuity plans may not effectively resolve the issues in a timely manner
frozen sandwiches Construction of this facility began in 2022 with production expected to begin in 2025 Production of new manufacturing facilities and distribution centers could cause delays and increased costs such as shortages of materials or skilled labor unforeseen construction scheduling engineering or environmental problems impacts of adverse weather and unanticipated cost increases If we are unable to commence production at the McCalla facility within the anticipated timeframe our financial condition and results of operations could be adversely affected
As of April 30 2024 27 percent of our full time employees located at eleven manufacturing locations are covered by collective bargaining agreements inclusive of Hostess Brands employees These contracts vary in term depending on location with six contracts expiring in 2025 representing approximately 10 percent of our total employees We cannot be certain that we will be able to renew these collective bargaining agreements on the same or more favorable terms as the current agreements or at all without production interruptions caused by labor stoppages If a strike or work stoppage were to occur in connection with negotiations of a new collective bargaining agreement or as a result of disputes under collective bargaining agreements with labor unions our business financial condition and results of operations could be materially adversely affected
We are the branded market leader in several categories both in the U S and Canada We believe that maintaining and continually enhancing the value of our brands is critical to the success of our business Brand value is based in large part on consumer perceptions Success in promoting and enhancing brand value depends on our ability to provide high quality products Brand value could diminish significantly as a result of a number of factors such as if we fail to preserve the quality of our products if there are concerns about the safety of our products if we are perceived to act in an irresponsible manner if the Company or our brands otherwise receive negative publicity if our brands fail to deliver a consistently positive consumer experience or if our products become unavailable to consumers The growing use of social and digital media by consumers increases the speed and extent that information and opinions can be shared Negative posts or comments about us our brands or products on social or digital media could damage our brands and reputation If we are unable to build and sustain brand equity by offering recognizably superior products we may be unable to maintain premium pricing over private label products If our brand values are diminished our revenues and operating results could be materially adversely affected In addition anything that harms the
We may not be able to attract develop and retain the highly skilled people we need to support our business and our results could be adversely impacted as a result of increased labor and employee related expenses
We depend on the skills and continued service of key employees including our experienced management team In addition our ability to achieve our strategic and operating goals depends on our ability to identify recruit hire train and retain qualified individuals including for example all levels of skilled labor in our manufacturing facilities We compete with other companies both within and outside of our industry for talented people and we may lose key employees or fail to attract recruit train develop and retain other talented individuals Any such loss failure or negative perception with respect to these individuals may adversely affect our business or financial results In addition activities related to identifying recruiting hiring integrating and training qualified individuals may require significant time and expense We may not be able to locate suitable replacements for any key employees who leave or to offer employment to potential replacements on reasonable terms each of which may adversely affect our business and financial results
Over the past few years particularly related to operations we have experienced an increasingly competitive labor market lack of skilled labor with advanced capabilities developed over the course of a career labor inflation labor shortages in our supply chain as a result of national and global macroeconomic conditions and like most in the national workforce an increased demand for greater flexibility and control over work schedules These challenges have resulted in and could continue to result in increased costs and could impact our ability to meet consumer demand each of which may adversely affect our business and financial results
We continuously review our operations in an effort to pursue initiatives to reduce costs increase effectiveness and optimize cash flow We may not realize all of the anticipated cost savings or other benefits from such initiatives Other events and circumstances such as financial or strategic difficulties delays or unexpected costs may also adversely impact our ability to realize all of the anticipated cost savings or other benefits or cause us not to realize such cost savings or other benefits on the expected timetable If we are unable to realize the anticipated benefits our ability to fund other initiatives may be adversely affected Finally the complexity of the implementation may require a substantial amount of management and operational resources Our management team must successfully execute the administrative and operational changes necessary to achieve the anticipated benefits of the initiatives These and related demands on our resources may divert the organization s attention
from other business issues have adverse effects on existing business relationships with suppliers and customers and impact employee morale Any failure to implement these initiatives in accordance with our plans could adversely affect our business operating efficiency and financial results
During 2023 we created a Transformation Office to support our multi year commitment to ongoing margin enhancement efforts inclusive of the removal of stranded overhead costs associated with the recent divestitures of certain pet food brands
and the Canada condiment businesses The Transformation Office is focused on enterprise wide continuous improvement strategies to ensure a pipeline of productivity initiatives and profit growth opportunities It is comprised of cross functional leaders at every level of our organization who help to establish new ways of working along with sustainable efficiencies and cost reduction efforts throughout our Company If we are unable to successfully implement our transformation initiatives our business and results of operations could be adversely affected
taste texture and quality Extended shelf life ESL is an important component of our Direct to Warehouse model Our ability to produce and successfully market existing and new products with ESL is important to our success If we are unable to continue to produce Hostess Brands products with ESL or if such products are not accepted by consumers we could be forced to make changes to our distribution model or products that could have an adverse effect on our product sales financial condition and operating results
The food industry is subject to risks posed by food spoilage and contamination product tampering mislabeling food allergens adulteration of food products resulting in product recall consumer product liability claims or regulatory investigations or actions Our operations could be impacted by both genuine and fictitious claims regarding our products as well as our competitors products In the event of product contamination tampering or mislabeling we may need to recall some of our products A widespread product recall could result in significant loss due to the cost of conducting a product recall including destruction of inventory and the loss of sales resulting from the unavailability of product for a period of time We could also suffer losses from a significant judgment or settlement of a claim or litigation or a regulatory action taken against us In addition we could be the target of claims of false or deceptive advertising under U S federal and state laws as well as foreign laws including consumer protection statutes of some states A significant product recall a product liability judgment or settlement a regulatory action or false advertising claim involving either us or our competitors could also result in a loss of consumer confidence in our food products or the food category and an actual or perceived loss of value of our brands materially impacting consumer demand
peanut butter products produced at our Lexington Kentucky facility and sold primarily in the U S due to potential salmonella contamination During 2023 and 2022 we recognized total direct costs associated with the recall of approximately 120 0 net of insurance recoveries related to customer returns fees unsaleable inventory and other product recall related costs primarily within our U S Retail Frozen Handheld and Spreads segment There were no significant direct costs recognized during 2024
voluntary recall identifying concerns regarding certain practices and controls at the facility We responded to the Warning Letter with a detailed explanation of our food safety plan and extensive verification activities to prevent contamination in
peanut butter products In addition we strengthened our already stringent quality processes The FDA delivered its Establishment Inspection Report concluding the June 2022 inspection in March 2024 Although the FDA has concluded its inspection other agencies may nonetheless conclude that certain practices or controls were not in compliance with the Federal Food Drug and Cosmetic Act
or other laws Any potential regulatory action based on such an agency conclusion could result in the imposition of injunctive terms and monetary payments that could have a material adverse effect on our business reputation brand results of operations and financial performance as well as affect ongoing consumer litigation associated with the voluntary recall of
voluntary recall cannot be predicted at this time Accordingly no loss contingency has been recorded for these matters as of April 30 2024 and the likelihood of loss is not considered probable or reasonably estimable
Sales to Walmart Inc and subsidiaries amounted to 33 percent of net sales in 2024 These sales are primarily included in our U S retail market segments Trade receivables net at April 30 2024 included amounts due from Walmart Inc and subsidiaries of 211 7 or 29 percent of the total trade receivables net balance During 2024 our top 10 customers collectively accounted for approximately 60 percent of consolidated net sales We expect that a significant portion of our revenues will continue to be derived from a limited number of customers as the traditional retail grocery environment continues to consolidate and as dollar stores club stores and e commerce retailers have experienced growth Our customers are generally not contractually obligated to purchase from us as we do not have long term supply contracts with any of our major customers These customers make purchase decisions based on a combination of price promotional support product quality consumer demand customer service performance their desired inventory levels and other factors Changes in customers strategies including a reduction in the number of brands they carry or a shift of shelf space to private label products or other companies branded products may adversely affect sales and profitability Customers also may respond to price increases by reducing distribution resulting in reduced sales of our products Additionally our customers may face financial or other difficulties that may impact their operations and their purchases from us which could adversely affect our results of operations A reduction in sales to one or more major customers could have a material adverse effect on our business financial condition and results of operations
duct quality price packaging product innovation nutritional value ingredient content taste convenience customer service advertising promotion and brand recognition and loyalty Continued success is dependent on product innovation the ability to secure and maintain adequate retail shelf space and to compete in new and growing channels and effective and sufficient trade merchandising advertising and marketing programs In particular technology based systems which give consumers the ability to shop through e commerce websites and mobile commerce applications are also significantly altering the retail landscape in many of our markets and intensifying competition by simplifying distribution and lowering barriers to entry We are committed to serving customers and consumers in e commerce transforming our manufacturing commercial and corporate operations through digital technologies and enhancing our data analytics capabilities to develop new commercial insights However if we are unable to effectively compete in the expanding e commerce market adequately leverage technology to improve operating efficiencies including artificial intelligence machine learning and augmented reality or develop the data analytics capabilities needed to generate actionable commercial insights our business performance may be impacted which may negatively impact our financial condition and results of operations
Some of our competitors have substantial financial marketing and other resources and competition with them in our various markets channels and product lines could cause us to reduce prices increase marketing or other expenditures or lose category share Category share and growth could also be adversely impacted if we are not successful in introducing new products Introduction of new products an
d product extensions requires significant development marketing investment and consideration of our diverse consumer base If our products fail to meet consumer preferences or we fail to introduce new and improved products on a timely basis then the return on that investment will be less than anticipated and our strategy to grow sales and profits through investment in innovation will be less successful In addition if sales generated by new products cause a decline in our sales of our existing products our financial condition and results of operations could be negatively affected In order to generate future revenues and profits we must continue to sell products that appeal to our customers and consumers Specifically there are a number of trends in consumer preferences that may impact us and the food industry as a whole including convenience flavor variety an emphasis on health and wellness including weight management e g the use of medications and dieting the desire for transparent product labeling and simple and natural ingredients
Further weak economic conditions recessions significant inflation severe or unusual weather events pandemics and other factors could affect consumer preferences and demand causing a strain on our supply chain due in part to retailers distributors or carriers modifying their restocking fulfillment or shipping procedures Failure to respond to these changes could negatively affect our financial condition and results of operations
We may not be able to pass some or all of any increases in the price of raw materials energy and other input costs to our customers by raising prices or decreasing product size To the extent competitors do not also increase their prices or decrease product size customers and consumers may choose to purchase competing products including private label or other lower priced offerings which may adversely affect our results of operations or our market share
Consumers may be less willing or able to pay a price differential for our branded products and may increasingly purchase lower priced offerings or may forego some purchases altogether especially during economic downturns or instances of increased inflationary pressures Retailers may also increase levels of promotional activity for lower priced offerings as they seek to maintain sales volumes during times of economic uncertainty Accordingly sales volumes of our branded products could be reduced or lead to a shift in sales mix toward our lower margin offerings As a result decreased demand for our products or a shift in sales mix toward lower margin offerings may adversely affect our results of operations or our market share
In nearly all of our product categories we compete against branded products as well as private label products Our products must provide higher value and or quality to our consumers than alternatives particularly during periods of economic uncertainty weakness or inflation Consumers may not buy our products if relative differences in value and or quality between our products and private label products change in favor of competitors products or if consumers perceive this type of change and choose the lower priced brands If consumers prefer private label products which are typically sold at lower prices then we could lose category share or sales volumes and or shift our product mix to lower margin offerings which could have a material effect on our business financial position and results of operations
Our ability to competitively serve customers depends on the availability of reliable transportation Increases in logistics and other transportation related costs could adversely impact our results of operations
Logistics and other transportation related costs have a significant impact on our earnings and results of operations We use multiple forms of transportation including ships trucks railcars and third party carriers to bring our products to market Disruption to the timely supply of these services or increases in the cost of these services for any reason including availability or cost of fuel regulations affecting the industry labor shortages in the transportation industry service failures by third party service providers carrier capacity accidents natural disasters inflation a pandemic illness or a cybersecurity breach or attack may impact our ability to obtain reliable transportation for products Our procurement of transportation services from a diversified group of carriers and continuous monitoring of our transportation methods could be insufficient to protect us from changes in market demand or carrier capacity The inability to distribute our products in a cost effective manner could have a material adverse effect on our ability to serve our customers our business financial condition and results of operations
We and our business partners purchase and use large quantities of many different commodities and agricultural products in the manufacturing of our products including green coffee peanuts oils and fats flour sugar fruit and other ingredients In addition we and our business partners utilize significant quantities of plastic glass metal cans caps carton board and corrugate to package our products and natural gas and fuel oil to manufacture package and distribute our products The prices of these commodities agricultural based products and other materials are subject to volatility and can fluctuate due to conditions that are difficult to predict including global supply and demand commodity market fluctuations crop sizes and yield fluctuations adverse weather conditions natural disasters water supply pandemic illness foreign currency fluctuations investor speculation trade agreements such as tariffs and sanctions political instability geopolitical conflicts consumer demand general economic conditions such as inflationary pressures and rising interest rates and changes in governmental agricultural programs Furthermore commodity and oil prices have been impacted by the ongoing conflicts between Russia and Ukraine and Israel and Hamas
We also compete for certain raw materials notably corn and soy based agricultural products with the biofuels industry which has resulted in increased prices for these raw materials Additionally farm acreage currently devoted to other agricultural products we purchase may be utilized for biofuel crops resulting in higher costs for the other agricultural products we utilize Although we use futures basis options and fixed price contracts to manage commodity price volatility in some instances commodity price increases ultimately result in corresponding increases in our raw material and energy costs
During 2024 we continued to experience materially higher commodity and supply chain costs including manufacturing ingredient and packaging costs due to inflationary pressures We expect the pressures of cost inflation to continue into 2025 although with less volatility than experienced in 2024 and 2023 Although we take measures to mitigate inflation through the use of derivatives and pricing actions if these measures are not effective our financial condition results of operations and cash flows could be materially adversely affected
We expect the green coffee commodity markets to continue to be challenging due to the significant ongoing price volatility For example during 2022 we experienced drought and frost impacts which substantially reduced green coffee production in Brazil Due to the significance of green coffee to our coffee business combined with our ability to only partially mitigate future price risk through purchasing practices and hedging activities significant increases or decreases in the cost of green coffee could have an adverse impact on our profitability as compared to that of our competitors In addition if we are not able to purchase sufficient quantities of green coffee due to any of the above factors or to a worldwide or regional shortage we may not be able to fulfill the demand for our coffee which could have a material adverse effect on our business financial condition and results of operations
We use derivative instruments including commodity futures and options to reduce the price volatility associated with anticipated commodity purchases The extent of our derivative position at any given time depends on our assessment of the markets for these commodities If we fail to take a derivative position and costs subsequently increase or if we institute a position and costs subsequently decrease our costs may be greater than anticipated or higher than our competitors costs and our financial results could be adversely affected In addition our liquidity may be adversely impacted by the cash margin requirements of the commodity exchanges or the failure of a counterparty to perform in accordance with a contract
We currently do not qualify any of our commodity or foreign currency exchange derivatives for hedge accounting treatment We instead mark to market our derivatives through the Statements of Consolidated Income which results in changes in the fair value of all of our derivatives being immediately recognized in consolidated earnings resulting in potential volatility in both gross profit and net income loss These gains and losses are reported in cost of products sold in our Statements of Consolidated Income but are excluded from our segment operating results and non GAAP earnings until the related inventory is sold at which time the gains and losses are reclassified to segment profit and non GAAP earnings Although this accounting treatment aligns the derivative gains and losses with the underlying exposure being hedged within segment results it may result in volatility in our consolidated earnings
We may need new or additional financing in the future to conduct our operations expand our business or refinance existing indebtedness which would be dependent upon our financial performance Any downgrade in our credit ratings particularly our short term rating would likely impact the amount of commercial paper we could issue and increase our commercial paper borrowing costs The liquidity of the overall capital markets and the state of the economy including the food and beverage industry may make credit and capital markets more difficult for us to access even though we have an established revolving credit facility From time to time we have relied and also may rely in the future on access to financial markets as a source of liquidity for working capital requirements acquisitions and general corporate purposes In particular our access to funds under our revolving credit facility is dependent on the ability of the financial institutions that are parties to that facility to meet their funding commitments The obligations of the financial institutions under our revolving credit facility are several and not joint and as a result a funding default by one or more institutions does not need to be made up by the others In addition long term volatility and disruptions in the capital and credit markets as a result of uncertainty changing or increased regulation of financial institutions reduced alternatives or the failure of significant financial institutions could adversely affect our access to the liquidity needed for our business in the longer term Such disruptions could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our
business needs can be arranged Disruptions in the capital and credit markets could also result in higher interest rates on publicly issued debt securities and increased costs under credit facilities Continuation of these disruptions would increase our interest expense and capital costs and could adversely affect our results of operations and financial position
Our substantial debt obligations could restrict our operations and financial condition Additionally our ability to generate cash to make payments on our indebtedness depends on many factors beyond our control
As of April 30 2024 we had 8 4 billion of short term borrowings and long term debt We may also incur additional indebtedness in the future Our debt service obligations will require us to use a portion of our operating cash flow to pay interest and principal on indebtedness rather than for other corporate purposes including funding future expansion of our business and ongoing capital expenditures which could impede our growth Our substantial indebtedness could have other adverse consequences including
Our ability to make payments on our indebtedness will depend on our ability to generate cash in the future Our ability to generate cash is subject to general economic financial competitive legislative regulatory and other factors many of which are beyond our control Our business may not generate sufficient cash flow from operations and future borrowings may not be available to us in an amount sufficient to enable us to pay our indebtedness when scheduled payments are due or to fund other liquidity needs In these circumstances we may need to refinance all or a portion of our indebtedness on or before maturity Any refinancing of our debt could be at higher interest rates and may require make whole payments and compliance with more onerous covenants which could further restrict our business operations Our ability to refinance our indebtedness or obtain additional financing would depend on among other things our financial condition at the time restriction in the agreements governing our indebtedness and the condition of the financial markets and the industry in which we operate As a result we may not be able to refinance any of our indebtedness on commercially reasonable terms or at all Without this financing we may have to seek additional equity or debt financing or restructure our debt which could harm our long term business prospects Our failure to comply with the terms of any existing or future indebtedness could result in an event of default which if not cured or waived could result in the acceleration of the payment of all of our debt
In addition there are various covenants and restrictions in our debt and financial instruments If we fail to comply with any of these requirements the related indebtedness could become due and payable prior to its stated maturity and our ability to obtain additional or alternative financing may also be negatively affected
A significant portion of our assets is composed of goodwill and other intangible assets the majority of which are not amortized but are reviewed for impairment at least annually on February 1 and more often if indicators of impairment exist At April 30 2024 the carrying value of goodwill and other intangible assets totaled 14 9 billion compared to total assets of 20 3 billion and total shareholders equity of 7 7 billion If the carrying value of these assets exceeds the current estimated fair value the asset would be considered impaired and this would result in a noncash charge to earnings which could be material Events and conditions that could result in impairment include a sustained drop in the market price of our common shares increased competition or loss of market share obsolescence product claims that result in a significant loss of sales or profitability over the product life deterioration in macroeconomic conditions declining financial performance in comparison to projected results increased input costs beyond projections or divestitures of significant brands
As of April 30 2024 goodwill and indefinite lived intangible assets totaled 7 6 billion and 4 3 billion respectively The carrying values of the goodwill and indefinite lived intangible assets were 2 4 billion and 1 8 billion respectively within the Sweet Baked Snacks segment 2 1 billion and 1 2 billion respectively within the U S Retail Coffee segment and 1 6
oodwill and indefinite lived trademarks within the Sweet Baked Snacks reportable segment were based on their estimated fair values on the acquisition date Since carrying value represents the estimated fair value these assets could be more susceptible to future impairment A change to the assumptions regarding future performance of the business or a portion of it or a change to other assumptions could result in significant impairment losses in the future For additional information refer to Note 7 Goodwill and Other Intangible Assets
We do not believe that the Sweet Baked Snacks reporting unit or any of the indefinite lived assets within the Sweet Baked Snacks segment are more likely than not impaired as of April 30 2024 However significant adverse changes to the assumptions regarding the future performance of the Sweet Baked Snacks segment or its brands a sustained adverse change to macroeconomic conditions or a change to other assumptions could result in impairment losses in the future which could be significant As of April 30 2024 with the exception of the Sweet Baked Snacks reporting unit and indefinite lived intangible assets the estimated fair value was substantially in excess of the carrying value for all reporting units and material indefinite lived intangible assets and in all such instances the estimated fair value exceeded the carrying value by greater than 10 percent
While we concluded there were no indicators of impairment as of April 30 2024 any significant sustained adverse change in consumer purchasing behaviors financial results or macroeconomic conditions could result in future impairment
We work with our suppliers to extend our payment terms which are then supplemented by a third party administrator to assist in effectively managing our working capital If the extension of payment terms is reversed or the financial institution terminates its participation in the program our ability to maintain acceptable levels of working capital may be adversely affected
As part of ongoing efforts to maximize working capital we work with our suppliers to optimize our terms and conditions which includes the extension of payment terms Payment terms with our suppliers which we deem to be commercially reasonable range from 0 to 180 days We have an agreement with a third party administrator to provide an accounts payable tracking system and facilitate a supplier financing program which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third party financial institution Participating suppliers can sell one or more of our payment obligations at their sole discretion and our rights and obligations to our suppliers are not impacted We have no economic interest in a supplier s decision to enter into these agreements Our rights and obligations to our suppliers including amounts due and scheduled payment terms are not impacted by our suppliers decisions to sell amounts under these arrangements As of April 30 2024 and 2023 384 9 and 414 2 of our outstanding payment obligations respectively were elected and sold to a financial institution by participating suppliers
If the financial institution terminates its participation in our supplier financing program and we are unable to modify related consumer payment terms or payment terms are shortened as a result of supplier negotiations working capital could be adversely affected In addition due to terminations or negotiations we may be unable to secure alternative programs and may have to utilize various financing arrangements for short term liquidity or increase our long term debt
The declaration payment and amount of any dividends is made pursuant to our dividend policy and is subject to the discretion of our Board and depends on various factors such as our net income loss financial condition cash requirements future events and other factors deemed relevant by the Board Accordingly there can be no assurance that any future dividends will be equal or similar in amount to any dividends previously paid or that our Board will not decide to reduce suspend or discontinue the payment of dividends at any time in the future
Certain of our products contain ingredients which are the subject of public scrutiny including the suggestion that consumption may have adverse health effects Although we strive to respond to consumer preferences and social expectations we may not be successful in these efforts An unfavorable report on the effects of ingredients present in our
We may also be subject to complaints from or litigation by consumers who allege food and beverage related illness or other quality health advertising or operational concerns Adverse publicity resulting from such allegations could materially adversely affect us regardless of whether such allegations are true or whether we are ultimately held liable A lawsuit or claim could result in an adverse decision against us which could have a material adverse effect on our business financial condition and results of operations
Changes in tax environmental or other regulations and laws or their application or failure to comply with existing licensing trade and other regulations and laws could have a material adverse effect on our financial condition
We are subject to income and other taxes primarily in the U S and Canada based upon the jurisdictions in which our sales and profits are determined to be earned and taxed Federal state and foreign statutory income tax rates and taxing regimes have been subject to significant change and continue to evolve Our interpretation of current tax laws and their applicability to our business as well as any changes to existing laws can significantly impact our effective income tax rate and deferred tax balances In particular proposals brought forth by the U S presidential administration include increases to federal income tax rates that if enacted could have a material impact to our financial results We are also subject to regular reviews examinations and audits by the Internal Revenue Service the IRS and other taxing authorities with respect to taxes within and outside of the U S Although we believe our tax estimates are reasonable the final outcome of tax controversies could result in material incremental tax liabilities including interest and penalties Our effective income tax rate is also influenced by the geography timing nature and magnitude of transactions such as acquisitions and divestitures restructuring activities and impairment charges
Our operations are subject to various regulations and laws in addition to tax laws administered by federal state and local government agencies in the U S including the FDA U S Federal Trade Commission the U S Departments of Agriculture Commerce and Labor state regulatory agencies and other agencies as well as to regulations and laws administered by government agencies in Canada and other countries in which we have operations and our products are sold In particular the manufacturing marketing transportation storage distribution packaging disposal and sale of food products are each subject to governmental regulation that is increasingly extensive Governmental regulation encompasses such matters as ingredients including whether a product contains bioengineered ingredients packaging and disposal of packaging labeling including use of certain terms such as sugar free healthy low sodium and low fat pricing advertising relations with distributors and retailers health safety data privacy and security and anti corruption as well as an increased focus regarding environmental policies relating to climate change regulating greenhouse gas emissions energy policies and sustainability including single use plastics Additionally we are routinely subject to new or modified securities regulations other laws and regulations and accounting and reporting standards
In the U S we are required to comply with federal laws such as the FDCA the Food Safety Modernization Act the Occupational Safety and Health Act the Clean Air Act the Clean Water Act the Resource Conservation and Recovery Act the Tariff Act laws governing equal employment opportunity and various other federal statutes and regulations
We are also subject to various laws and regulations that are continuously evolving in the U S and other jurisdictions regarding privacy data protection and data security including those related to the collection storage handling use disclosure transfer and security of personal data For example in the U S California Virginia Colorado Connecticut and Utah all have comprehensive privacy laws in effect which impose privacy obligations on companies that do business in these states and that collect personal information from certain individuals providing civil penalties for companies that fail to comply with these requirements including in some jurisdictions a private right of action for data breaches Several additional states have passed similar comprehensive privacy laws that are set to take effect between calendar years 2024 and 2026 and beyond calendar year 2026 it is highly likely there will be several more states following suit Therefore on an ongoing basis we will be evaluating whether we have new privacy obligations that require us to develop additional compliance mechanisms and processes There are also a wide range of enforcement agencies at both state and federal levels that can investigate companies for privacy and data security concerns based on general consumer protection laws Accordingly failure to comply with federal and state laws regarding privacy and security of personal information could expose us to fines and penalties
Complying with new regulations and laws or changes to existing regulations and laws or their application could increase our costs or adversely affect our sales of certain products In addition our failure or inability to comply with applicable
regulations and laws could subject us to civil remedies including fines injunctions recalls or seizures and potential criminal sanctions which could have a material adverse effect on our business and financial condition
In many countries outside of the U S particularly in those with developing or emerging economies it may be common for others to engage in business practices prohibited by laws and regulations applicable to us such as the U S Foreign Corrupt Practices Act or similar local anti bribery or anti corruption laws These laws generally prohibit companies and their employees contractors or agents from making improper payments to government officials for the purpose of obtaining or retaining business Failure to comply with these laws could subject us to civil and criminal penalties that could have a material adverse effect on our financial condition and results of operations In addition the enforcement of remedies in foreign jurisdictions may be less certain resulting in varying abilities to enforce intellectual property and contractual rights
As set forth in the Intergovernmental Panel on Climate Change Sixth Assessment Report global average temperatures are gradually increasing due to increased concentration of carbon dioxide and other greenhouse gases in the atmosphere which have contributed to and are expected to continue contributing to significant changes in weather patterns around the globe and an increase in the frequency and severity of extreme weather and natural disasters In the event that climate change has a negative effect on agricultural productivity we may be subject to decreased availability or less favorable pricing for certain commodities that are necessary for our products such as green coffee peanuts oils and fats flour sugar fruit and other ingredients We may also be subjected to decreased availability or less favorable pricing for water or energy as a result of such change which could impact our manufacturing and distribution operations In addition natural disasters extreme weather conditions and other natural conditions may disrupt the productivity of our facilities or the operation of our supply chain which could increase our insurance or other operating costs or require us to make additional unplanned capital expenditures Specifically
2022 Hurricane Ida caused our coffee manufacturing facilities in New Orleans Louisiana to be temporarily shut down Although we consider these to be uncommon events and we were able to effectively minimize any disruptions through our business continuity planning efforts extreme weather could disrupt our production in the future adversely affecting our ability to meet customer deadlines and supply demands
Additionally there is an increased focus by foreign federal state and local regulatory and legislative bodies regarding environmental policies relating to climate change regulating greenhouse gas emissions energy policies and sustainability including single use plastics Increased energy or compliance costs and expenses due to the impacts of climate change and additional legal or regulatory requirements regarding climate change designed to reduce or mitigate the effects of carbon dioxide and other greenhouse gas emissions on the environment could be costly and may cause disruptions in or an increase in the costs associated with our manufacturing and distribution facilities as well as increase supply chain costs Moreover compliance with any such legal or regulatory requirements may require us to make significant changes to our business operations strategy and reporting
Collecting measuring and analyzing information relating to climate change and sustainability matters can be costly time consuming dependent on third party cooperation and unreliable Furthermore methodologies for measuring tracking and reporting on climate change and sustainability continue to change over time which requires our processes and controls for such data to evolve as well
Finally we might fail to effectively address increased attention from the media shareholders activists and other stakeholders on climate change and related environmental sustainability matters Such failure or the perception that we have failed to act responsibly with respect to such matters or to effectively respond to new or additional regulatory requirements regarding climate change whether or not valid could result in adverse publicity and negatively affect our business and reputation In addition from time to time we establish and publicly announce goals and commitments including goals to reduce our impact on the environment For example in 2022 we established science based targets for Scope 1 2 and 3 greenhouse gas emissions Our ability to achieve any stated goal target or objective is subject to numerous factors and conditions many of which are outside of our control including evolving regulatory requirements and the availability of suppliers that can meet our sustainability and other standards Furthermore standards for tracking and reporting such matters continue to evolve Our selection of voluntary disclosure frameworks and standards and the interpretation or application of those frameworks and standards may change from time to time or differ from those of others Methodologies for reporting this data may be updated and previously reported data may be adjusted to reflect improvement in availability and quality of third party data changing assumptions changes in the nature and scope of our operations including from acquisitions and divestitures and other
changes in circumstances which could result in significant revisions to our current goals reported progress in achieving such goals or ability to achieve such goals in the future If we fail to achieve are perceived to have failed to achieve or are delayed in achieving these goals and commitments it could negatively affect consumer preference for our products or investor confidence in our stock as well as expose us to government enforcement actions and private litigation
on our ability to drive revenue growth in our brands faster than the population in general We consider our ability to build and sustain the equity of our brands critical to our market share growth Since our operations are concentrated in the North American consumer and snacking industry our success also depends in part on our ability to enhance our portfolio by adding innovative new products If we do not suc
If our information technology systems fail to perform adequately or we are unable to protect such information technology systems against data corruption or cybersecurity incidents our operations could be disrupted and we may suffer financial damage or loss because of lost or misappropriated information
We rely on information technology IT networks and systems including the Internet to process transmit and store electronic information and the importance of such networks and systems has increased due to many of our employees working remotely In particular we depend on our IT infrastructure to effectively manage our business data supply chain logistics finance manufacturing and other business processes and for digital marketing activities and electronic communications between Company personnel and our customers and suppliers If we do not allocate and effectively manage the resources necessary to build sustain and protect an appropriate technology infrastructure or we do not effectively implement system upgrades our business or financial results could be negatively impacted Furthermore the rapid evolution of emerging technologies such as artificial intelligence may intensify our cybersecurity risks We are regularly the target of attempted cyber and other security threats Therefore we continuously monitor and update our IT networks and infrastructure to prevent detect address and mitigate the risk of unauthorized access misuse computer viruses phishing attacks malware ransomware social engineering password theft physical breaches and other events that could have a security impact In addition the ongoing conflicts between Russia and Ukraine and Israel and Hamas have heightened the risk of cyberattacks We invest in industry standard security technology to protect our data and business processes against the risk of data security breaches and cyber based attacks We believe our security technology tools and processes provide adequate measures of protection against security breaches and in reducing cybersecurity risks Nevertheless despite continued vigilance in these areas security breaches or system failures of our infrastructure whether due to attacks by hackers employee error or other causes can create system disruptions shutdowns transaction errors or unauthorized disclosure of confidential or proprietary information If we are unable to prevent such breaches or failures our operations could be disrupted or we may suffer financial damage or loss because of lost or misappropriated information In addition the cost to remediate any damages to our IT systems suffered as a result of a cyber based attack could be significant
In addition if we experience a loss as a result of a cybersecurity incident or other breakdown in technology we may suffer reputational competitive and or business harm and may be exposed to legal liability and government investigations which may adversely affect our results of operations or financial condition The misuse leakage or falsification of information could also result in violations of data privacy laws and we may become subject to legal action and increased regulatory oversight We could also be required to spend significant financial and other resources to remedy the damage caused by a cybersecurity incident or to repair or replace networks and information
Further we have outsourced several IT support services and administrative functions including benefit plan administration and other functions to third party service providers and strategic partners and may outsource other functions in the future to achieve cost savings and efficiencies In addition certain of our processes rely on third party cloud computing services If the service providers to which we outsource these functions do not perform effectively we may not be able to achieve the expected benefits and may have to incur additional costs to correct errors made by such service providers Depending on the function involved such errors may also lead to business disruption processing inefficiencies inaccurate financial reporting the loss of or damage to intellectual property through a security breach the loss of sensitive data through a security breach or otherwise
e rely on IT networks and systems to manage our business and operations and occasionally implement new and upgrade our existing IT systems We are in the process of a multi year implementation of a new enterprise performance management EPM system inclusive of an enterprise resource planning system i e general ledger through the use of Oracle Cloud Solutions The EPM system will replace our existing financial system and is designed to accurately maintain our financial records enhance operational functionality and efficiency and provide timely information to our management team The EPM system implementation process has required and will continue to require the investment of significant personnel and financial resources over the duration of the project We anticipate full integration of the EPM system in early 2026 Further we may not be able to successfully implement the EPM system without experiencing delays increased costs and other complications including potential design defects miscalculations testing requirements and the diversion of management s attention from day to day business operations If we are unable to successfully design and implement the new EPM system as planned our financial condition results of operations and cash flows could be negatively impacted In addition if the EPM system does not operate as intended the effectiveness of our internal controls over financial reporting could be adversely affected
The global economy has been negatively impacted by the ongoing conflicts between Russia and Ukraine and Israel and Hamas Governments in the United States United Kingdom and European Union have imposed sanctions on certain products industry sectors and parties in Russia Although we do not have any operations in Russia Ukraine Israel or Palestine we have experienced and may continue to experience shortages in materials and increased costs for transportation energy and raw materials due in part to the negative impact of the conflicts on the global economy If the conflicts continue for an extended period of time they could result in cyberattacks supply chain disruptions lower consumer demand changes in foreign currency exchange rates increased trade barriers and restrictions on global trade and other impacts which may adversely affect our business financial condition or results of operations These and other impacts of the ongoing conflicts between Russia and Ukraine and Israel and Hamas could also heighten many of the other risk factors discussed in this section
IT systems and networks are important to our business operations and we are committed to protecting the privacy security and integrity of our data inclusive of our employee and customer data We have a comprehensive cybersecurity program in place that is responsible for identifying preventing and mitigating data security risks This program is aligned with the Company s overall Enterprise Risk Management process
Our security technology tools and processes provide protection against security breaches and reduce cybersecurity risks Our cybersecurity incident response plan includes procedures for identifying containing and responding to incidents While we continue to invest in our program and capabilities we cannot guarantee prevention of all incidents
We depend on IT systems third party service providers and strategic partners to facilitate our business operations This includes secure handling of personal confidential financial sensitive proprietary and other forms of information as well as enabling our service offerings Despite continuous efforts to enhance both our and our partners cybersecurity defenses we cannot guarantee the protection of all information systems products and service technologies
While we face regular cybersecurity threats including ransomware and data breaches we have not encountered significant incidents during the year ended April 30 2024 We believe our security measures are adequate but we acknowledge the rising sophistication of threats Despite vigilance system disruptions or unauthorized disclosures remain possible
The Board actively supports strategy and oversees risk management drawing on a diverse range of experiences skills qualifications and backgrounds This includes oversight of cybersecurity matters The Audit Committee composed entirely of independent Board members receives quarterly updates on the cybersecurity program which includes recent developments program improvements risk analysis and an annual update on the Company s scenario based cybersecurity exercise The Audit Committee also receives periodic updates as may be needed including any cybersecurity events that would require notification to the Audit Committee The Audit Committee provides quarterly updates to the Board on key cybersecurity activities and cybersecurity is also reviewed at least annually with the Board In addition two of our Audit Committee members including the Chair hold a CERT Certificate in Cybersecurity Oversight from the National Association of Corporate Directors
We actively educate our employees about potential cybersecurity threats and actions Our executive officers and global workforce receive ongoing trainings in response to cyber threats and cybersecurity incidents We mandate annual completion of our information security training and compliance program which includes reviewing and acknowledging the Company s information security policy All employees also participate in regular security awareness training which includes data protection principles general end user security hygiene and internal phishing simulations Additional annual training covers information security topics related to our Code of Conduct and Records Management Policies
The table below lists all of our manufacturing and processing facilities at April 30 2024 All of our properties are maintained and updated on a regular basis and we continue to make investments for expansion and safety and technological improvements We believe that the capacity at our existing facilities will be sufficient to sustain current operations and the anticipated near term growth of our business
Additionally our principal distribution centers in the U S include one owned and seven leased facilities Our distribution facilities are in good condition and we believe that they have sufficient capacity to meet our distribution needs in the near future We lease four sales and administrative offices in the U S and one in Canada Our corporate headquarters is located in Orrville Ohio and our Canadian headquarters is located in Markham Ontario
The following table presents the total number of shares of common stock purchased during the fourth quarter of 2024 the average price paid per share the number of shares that were purchased as part of a publicly announced repurchase program if any and the approximate dollar value of the maximum number of shares that may yet be purchased under the share repurchase program
c During the year ended April 30 2024 we repurchased approximately 2 4 million common shares under our repurchase program as discussed in Note 17 Common Shares in Part II Item 8 in this Annual Report on Form 10 K
The following graph compares the cumulative total shareholder return for the five years ended April 30 2024 for our common shares the Standard Poor s S P Packaged Foods Meats Index and the S P 500 Index These figures assume all dividends are reinvested when received and are based on 100 00 invested in our common shares and the referenced index funds on April 30 2019
This Management s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide an understanding of our results of operations financial condition and cash flows by focusing on changes in certain key measures from year to year and should be read in conjunction with our consolidated financial statements and the accompanying notes presented in Item 8 Financial Statements and Supplementary Data in this Annual Report on Form 10 K This discussion contains forward looking statements that involve risks and uncertainties Our actual results could differ materially from those anticipated in these forward looking statements as a result of various factors including those discussed in Item 1A Risk Factors in this Annual Report on Form 10 K
At The J M Smucker Company it is our privilege to make food people and pets love by offering a diverse family of brands available across North America We are proud to lead in the coffee peanut butter fruit spreads frozen handheld sweet baked goods dog snacks and cat food categories by offering brands consumers trust for themselves and their families each day including
Through our unwavering commitment to producing quality products operating responsibly and ethically and delivering on our Purpose we will continue to grow our business while making a positive impact on society
We have four reportable segments U S Retail Coffee U S Retail Frozen Handheld and Spreads U S Retail Pet Foods and Sweet Baked Snacks We acquired Hostess Brands in a cash and stock transaction on November 7 2023 resulting in the new Sweet Baked Snacks reportable segment for 2024 Further the historical U S Retail Consumer Foods reportable segment has been renamed to U S Retail Frozen Handheld and Spreads however there is no change to the manner in which the segment was previously presented For additional information on our reportable segments see Note 5 Reportable Segments
The U S retail market segments and Sweet Baked Snacks segment in total comprised 85 percent of consolidated net sales in 2024 and represent a major portion of our strategic focus the sale of branded food and beverage products with leadership positions to consumers through retail outlets in North America Products within our U S retail market segments are primarily sold through a combination of direct sales and brokers to food retailers club stores discount and dollar stores online retailers pet specialty stores drug stores military commissaries mass merchandisers and distributors The Sweet Baked Snacks segment includes products distributed in all channels both domestically and in foreign countries such as supermarket chains national mass retailers convenience stores club stores discount and dollar stores drug stores and the vending channel International and Away From Home includes the sale of all products that are distributed in foreign countries through retail channels as well as domestically and in foreign countries through foodservice distributors and operators e g healthcare operators restaurants educational institutions offices lodging and gaming establishments and convenience stores
They were established by our founder and namesake Jerome Smucker more than a century ago and are the core of our unique corporate culture serving as the foundation for decision making and how we interact with our colleagues and partners While our
have evolved over time as we have grown we remain unwavering in our commitment to these core values and recognize how we are called to act upon them will continue to transform as the world around us does In addition we have been led by five generations of family leadership having had only six chief executive officers in over 125 years This continuity of management and thought extends to the broader leadership team that embodies the values and embraces the business practices that have contributed to our consistent growth
Our strategic vision is to engage delight and inspire consumers by building brands they love and leading in growing categories This vision is our long term direction that guides business priorities and aligns our organization As a company of 1 and leading brands with emerging on trend brands we will continue to drive balanced long term growth primarily in
North America Further we will continue to guide the transformation of our business and ensure our strategy of leading in the attractive categories of pet coffee and snacking by driving results through advancement on the following strategic pillars
Our strategic growth objectives include net sales increasing by a low single digit percentage and operating income excluding non GAAP adjustments adjusted operating income increasing by a mid single digit percentage on average over the long term Related to income per diluted share excluding non GAAP adjustments adjusted earnings per share our strategic growth objective is to increase by a high single digit percentage over the long term We expect organic growth including new products to drive much of our top line growth while the contribution from acquisitions will vary from year to year Our non GAAP adjustments include amortization expense and impairment charges related to intangible assets certain divestiture acquisition integration and restructuring costs special project costs gains and losses on divestitures the net change in cumulative unallocated gains and losses on commodity and foreign currency exchange derivative activities change in net cumulative unallocated derivative gains and losses and other infrequently occurring items that do not directly reflect ongoing operating results Refer to Non GAAP Financial Measures in this discussion and analysis for additional information Due to the unknown and potentially prolonged impact of the inflationary environment and challenged supply network we may experience difficulties or be delayed in achieving our long term strategies however we continue to evaluate the effects of the macroeconomic environment on our long term growth objectives
Over the past five years net sales adjusted operating income and adjusted earnings per share increased at a compound annual growth rate of approximately 1 percent 2 percent and 4 percent respectively These changes were primarily driven by increased at home consumption for the U S Retail Coffee and U S Retail Frozen Handheld and Spreads segments and an increase in net sales from the acquisition of Hostess Brands These increases were partially offset by the reduction in net sales from the divested
in 2021 Net cash provided by operating activities increased at a compound annual growth rate of approximately 2 percent over the past five years Our cash deployment strategy is to balance reinvesting in our business through acquisitions and capital expenditures with returning cash to our shareholders through the payment of dividends and share repurchases Our deployment strategy also includes a significant focus on debt repayment
On November 7 2023 we completed a cash and stock transaction to acquire Hostess Brands The total purchase consideration in connection with the acquisition was 5 4 billion which reflects an exchange offer of all outstanding shares of Hostess Brands common stock at a price of 34 25 per share consisting of 30 00 in cash and 0 03002 shares of our common shares based on the closing stock price on September 8 2023 that were exchanged for each share of Hostess Brands common stock as of the transaction date The purchase price included the issuance of approximately 4 0 million of our common shares to Hostess Brands shareholders valued at 450 2 In addition we paid 3 9 billion in cash net of cash acquired and assumed 991 0 of debt from Hostess Brands and 67 8 of an other debt like item reflecting consideration transferred for the cash payment of Hostess Brands employee equity awards New debt of 5 0 billion was borrowed consisting of 3 5 billion in Senior Notes an 800 0 senior unsecured delayed draw Term Loan Credit Agreement Term Loan and 700 0 of short term borrowings under our commercial paper program to partially fund the transaction and pay off the debt assumed as part of the acquisition Hostess Brands is a manufacturer and marketer of sweet baked goods brands including
cookie brand In addition to its headquarters in Lenexa Kansas the transaction included six manufacturing facilities located in Emporia Kansas Burlington Ontario Chicago Illinois Columbus Georgia Indianapolis Indiana and Arkadelphia Arkansas a distribution facility in Edgerton Kansas and a commercial center of excellence in Chicago Illinois Approximately 3 000 employees transitioned with the business at the close of the transaction During 2024 the acquired business contributed net sales of 637 3 within the Sweet Baked Snacks segment We anticipate cost synergies of approximately 100 0 which are expected to be achieved by the end of 2026 During 2024 we achieved cost synergies of approximately 11 0 For additional information refer to Note 2 Acquisition
pickled onions brands inclusive of certain trademarks Under our ownership these brands generated net sales of 43 8 61 6 and 62 7 in 2024 2023 and 2022 respectively which were included in the International operating segment Final net proceeds from the divestiture were 25 3 inclusive of a working capital adjustment and cash transaction costs We recognized a pre tax loss of 5 7 during 2024 within other operating expense income net in the Statement of Consolidated Income
brand generated net sales of 24 1 48 4 and 47 4 in 2024 2023 and 2022 respectively primarily included in the U S Retail Frozen Handheld and Spreads segment Final net proceeds from the divestiture were 31 6 inclusive of a working capital adjustment and cash transaction costs We recognized a pre tax loss of 6 7 during 2024 within other operating expense income net in the Statement of Consolidated Income
brands as well as our private label pet food business inclusive of certain trademarks and licensing agreements manufacturing and distribution facilities in Bloomsburg Pennsylvania manufacturing facilities in Meadville Pennsylvania and Lawrence Kansas and approximately 1 100 employees who supported these pet food brands Under our ownership these brands generated net sales of 1 5 billion and 1 4 billion in 2023 and 2022 respectively primarily included in the U S Retail Pet Foods segment Final net proceeds from the divestiture were 1 2 billion consisting of 683 9 in cash net of a working capital adjustment and cash transaction costs and approximately 5 4 million shares of Post common stock valued at 491 6 at the close of the transaction We recognized a pre tax loss of 1 0 billion upon completion of this transaction in 2023 within other operating expense income net in the Statement of Consolidated Income net of a working capital adjustment and transaction costs During 2024 we finalized the working capital adjustment and transaction costs which resulted in an immaterial adjustment to the pre tax loss Furthermore during 2024 we entered into equity forward derivative transactions under an agreement with an unrelated third party to facilitate the forward sale of the Post common stock All 5 4 million shares of Post common stock were settled under the equity forward contract for 466 3 on November 15 2023
manufacturing and distribution facilities in Chico California and Havre de Grace Maryland and approximately 150 employees who supported the natural beverage and grains businesses The transaction did not include
nut butters fruit spreads syrups or applesauce Under our ownership the businesses generated net sales of 106 7 in 2022 primarily included in the U S Retail Frozen Handheld and Spreads segment Final net proceeds from the divestiture were 98 7 inclusive of a working capital adjustment and cash transaction costs We recognized a pre tax gain of 28 3 related to the natural beverage and grains businesses of which 26 7 was recognized during 2022 and the remaining 1 6 was recognized upon finalization of the working capital adjustment in 2023 and is included within other operating expense income net in the Statements of Consolidated Income
On December 1 2021 we sold the private label dry pet food business to Diamond Pet Foods The transaction included dry pet food products sold under private label brands a dedicated manufacturing facility located in Frontenac Kansas and approximately 220 employees who supported the private label dry pet food business The transaction did not include any branded products or our private label wet pet food business Under our ownership the business generated net sales of 62 3 in 2022 included in the U S Retail Pet Foods segment Final net proceeds from the divestiture were 32 9 net of cash transaction costs Upon completion of this transaction during 2022 we recognized a pre tax loss of 17 1 within other operating expense income net in the Statement of Consolidated Income
During 2024 we continued to experience a dynamic macroeconomic environment which we anticipate will persist into 2025 although with less volatility than experienced in prior years In addition we anticipate the price elasticity of demand will remain elevated into 2025 as consumers continue to experience broader inflationary pressures In response to the inflationary pressures we continue to focus on the delivery of our company wide transformation initiative to deliberately translate our
In addition it is possible significant disruptions in our supply chain could occur if certain geopolitical events continue to impact markets around the world including the impact of potential shipping delays due to supply and demand imbalances as well as labor shortages We also continue to work closely with our customers and external business partners taking additional actions to ensure safety business continuity and maximize product availability We have maintained production at all our facilities and availability of appointments at distribution centers Furthermore we have implemented measures to manage order volumes to ensure a consistent supply across our retail partners during periods of high demand However to the extent that high demand levels or supply chain disruptions delay order fulfillment we may experience volume loss and elevated penalties Although we do not have any operations in Russia Ukraine Israel or Palestine we continue to monitor the environment for any significant escalation or expansion of economic or supply chain disruptions including broader inflationary costs as well as regional or global economic recessions
Overall broad based supply chain disruptions and the impact of inflation remain uncertain We will continue to evaluate the nature and extent to which supply chain disruptions and inflation will impact our business supply chain including labor availability and attrition results of operations financial condition and liquidity
This discussion and analysis deals with comparisons of material changes in the consolidated financial statements for the years ended April 30 2024 and 2023 For the comparisons of the years ended April 30 2023 and 2022 see the Management s Discussion and Analysis of Financial Condition and Results of Operations in Part II Item 7 of our 2023 Annual Report on Form 10 K
We use non GAAP financial measures to evaluate our performance Refer to Non GAAP Financial Measures in this discussion and analysis for a reconciliation to the comparable generally accepted accounting principles GAAP financial measure
Net sales excluding acquisition divestitures and foreign currency exchange is a non GAAP financial measure used to evaluate performance internally This measure provides useful information to investors because it enables comparison of results on a year over year basis
Net sales in 2024 decreased 350 5 or 4 percent which includes 1 565 5 of noncomparable net sales in the prior year related to divestitures partially offset by incremental net sales in the current year of 637 3 related to the Hostess Brands acquisition Net sales excluding acquisition divestitures and foreign currency exchange increased 584 5 or 8 percent Favorable volume mix contributed 5 percentage points to net sales primarily driven by contract manufacturing sales related to the divested pet food brands
peanut butter product recall in the prior year and coffee products Higher net price realization contributed 3 percentage points to net sales primarily due to list price increases for our U S Retail Frozen Handheld and Spreads and U S Retail Pet Foods segments and for International and Away From Home as well as the favorable impact of lapping customer returns and fees related to the
Gross profit increased 313 6 or 11 percent in 2024 primarily reflecting higher net price realization the noncomparable benefit of Hostess Brands lower commodity costs and favorable volume mix including the price and cost benefits from lapping the impact of the
Operating income increased 1 148 3 primarily driven by lapping the 1 0 billion pre tax loss related to the divestiture of certain pet food brands in 2023 the increase in gross profit a 15 8 decrease in amortization expense and an 8 8 decrease in
selling distribution and administrative SD A expenses These increases to operating income were partially offset by a 125 5 increase in special project costs primarily reflecting integration costs related to the acquisition of Hostess Brands and a 70 0 decrease in net other operating income primarily reflecting an unfavorable impact related to the termination of a supplier agreement and the impact of lapping the prior year insurance recovery from the
Our non GAAP adjustments include amortization expense and impairment charges related to intangible assets special project costs gains and losses on divestitures the change in net cumulative unallocated derivative gains and losses and other infrequently occurring items that do not directly reflect ongoing operating results Refer to Non GAAP Financial Measures in this discussion and analysis for additional information Gross profit excluding non GAAP adjustments adjusted gross profit increased 282 0 or 10 percent as compared to the prior year primarily reflecting the exclusion of the change in net cumulative unallocated derivative gains and losses as compared to GAAP gross profit Adjusted operating income increased 220 8 or 16 percent as compared to the prior year further reflecting the exclusion of the net pre tax loss on divestitures special project costs and amortization expense
Net interest expense increased 112 3 or 74 percent in 2024 primarily due to increased interest expense related to the new Senior Notes and Term Loan issued during 2024 to partially finance the acquisition of Hostess Brands partially offset by an increase in interest income reflecting higher interest rates on cash investments held during 2024 as compared to the prior year For additional information refer to Note 8 Debt and Financing Arrangements
Income taxes increased 170 3 in 2024 as compared to the prior year The effective income tax rate for 2024 varied from the U S statutory income tax rate of 21 0 percent primarily due to state income taxes and unfavorable permanent and deferred tax impacts associated with the acquisition of Hostess Brands The effective income tax rate for 2023 varied from the U S statutory income tax rate of 21 0 percent primarily due to unfavorable permanent tax impacts associated with the divestiture of certain pet food brands as well as state income taxes We anticipate a full year effective income tax rate for 2025 to be approximately 24 4 percent For additional information refer to Note 14 Income Taxes
and Canada condiment businesses are anticipated to be approximately 6 0 consisting primarily of employee related and lease termination costs all of which are expected to be cash charges with the majority recognized in 2024 and the remainder to be recognized during the first half of 2025 We incurred 3 9 of employee related costs and 1 6 of other transition and termination costs related to lease termination costs for these divestitures during 2024
Furthermore we identified opportunities to address certain distribution inefficiencies as a result of the divestiture of certain pet food brands We anticipate incurring approximately 11 0 of costs related to these efforts consisting primarily of other transition and termination charges The majority of these costs are expected to be cash charges and incurred by the end of 2026 with over half of the costs expected to be recognized in 2025 For additional information see Note 3 Divestitures
Total integration costs related to the acquisition of Hostess Brands are anticipated to be approximately 210 0 and include transaction costs employee related costs and other transition and termination charges Of the total anticipated integration costs approximately half reflect transaction costs with the remainder split between employee related costs and other transition and termination charges The majority of the integration costs are expected to be cash charges and will be incurred by the end of 2026 with 147 4 of the costs recognized in 2024
A restructuring program was approved by the Board during 2021 associated with opportunities identified to reduce our overall cost structure optimize our organizational design and support our portfolio reshape The program was further expanded in 2022 to include the costs associated with the divestitures of the private label dry pet food and natural beverage and grains businesses as well as the closure of certain production facilities The restructuring activities were considered complete as of April 30 2023 The costs incurred associated with these restructuring activities included other transition and termination costs related to our cost reduction and margin management initiatives inclusive of accelerated depreciation as well as employee related costs We incurred total cumulative restructuring costs of 63 7
The raw materials we use in each of our segments are primarily commodities agricultural based products and packaging materials The most significant of these materials based on 2024 annual spend are green coffee peanuts oils and fats flour sugar and fruit Green coffee corn certain meals oils and grains are traded on active regulated exchanges and the price of these commodities fluctuates based on market conditions Derivative instruments including futures and options are used to minimize the impact of price volatility for these commodities
We source green coffee from more than 20 coffee producing countries Its price is subject to high volatility due to factors such as weather global supply and demand product scarcity plant disease investor speculation geopolitical conflicts including the ongoing conflicts between Russia and Ukraine and Israel and Hamas changes in governmental agricultural and energy policies and regulation and political and economic conditions in the source countries
We source peanuts protein meals and oils and fats mainly from North America We are one of the largest roasters of peanuts in the U S and frequently enter into long term purchase contracts for various periods of time to mitigate the risk of a shortage of this commodity The oils we purchase are mainly palm soybean and peanut The price of peanuts protein meals and oils is driven primarily by weather which impacts crop sizes and yield as well as global demand especially from large importing countries such as China and India
We frequently enter into long term contracts to purchase plastic containers which are sourced mainly within the U S Plastic resin is made from petrochemical feedstock and natural gas feedstock and the price can be influenced by feedstock energy and crude oil prices as well as global economic and geopolitical conditions
We have four reportable segments U S Retail Coffee U S Retail Frozen Handheld and Spreads U S Retail Pet Foods and Sweet Baked Snacks The presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable
As disclosed in Note 2 Acquisition we acquired Hostess Brands in a cash and stock transaction on November 7 2023 resulting in the new Sweet Baked Snacks reportable segment for 2024 Further the historical U S Retail Consumer Foods reportable segment has been renamed to U S Retail Frozen Handheld and Spreads however there is no change to the manner in which the segment was previously presented We do not anticipate any impact to our other historical reportable segments as we do not anticipate any changes to the internal manner in which we will manage and report these reportable segments
branded products in all channels With the exception of Sweet Baked Snacks products International and Away From Home includes the sale of all products that are distributed in foreign countries through retail channels as well as domestically and in foreign countries through foodservice distributors and operators e g healthcare operators restaurants educational institutions offices lodging and gaming establishments and convenience stores
The U S Retail Coffee segment net sales decreased 30 9 in 2024 Net price realization decreased net sales by 3 percentage points reflecting list price decreases partially offset by reduced trade spend Favorable volume mix contributed 1 percentage point to net sales reflecting increases for the
brand Segment profit increased 21 5 primarily reflecting lower commodity costs and favorable volume mix partially offset by lower net price realization an unfavorable impact related to the termination of a supplier agreement and higher marketing spend
business Excluding the noncomparable impact of the divestiture net sales increased 200 7 or 12 percent Net price realization contributed 8 percentage points to net sales primarily reflecting a favorable impact of lapping customer returns and fees related to the
The U S Retail Pet Foods segment net sales decreased 1 215 3 in 2024 inclusive of the impact of 1 497 2 of noncomparable net sales in the prior year related to the divestiture of certain pet food brands Excluding the noncomparable impact of the divested brands net sales increased 281 9 or 18 percent Favorable volume mix contributed 11 percentage points to net sales primarily reflecting 136 2 of contract manufacturing sales related to the divested pet food brands and growth for the
brand Higher net price realization increased net sales by 7 percentage points primarily reflecting list price increases across the portfolio partially offset by increased trade spend Segment profit decreased 92 8 reflecting the impact of noncomparable segment profit in the prior year related to the divested brands increased distribution costs and higher marketing spend partially offset by a favorable net impact of higher net price realization and increased costs and favorable volume mix
We acquired Hostess Brands on November 7 2023 as discussed in Note 2 Acquisition During 2024 the Sweet Baked Snacks segment contributed net sales of 637 3 and segment profit of 138 2 including the recognition of an unfavorable fair value purchase accounting adjustment of approximately 8 3 attributable to the acquired inventory which increased cost of products sold for the segment
International and Away From Home net sales increased 73 7 in 2024 including the noncomparable impact of 52 3 of net sales in the prior year primarily related to the divestitures and 6 8 of unfavorable foreign currency exchange Excluding the noncomparable impact of the divested brands and foreign currency exchange net sales increased 132 8 or 12 percent Favorable volume mix contributed 7 percentage points to net sales primarily reflecting increases for frozen handheld portion control peanut butter inclusive of the impact of lapping the
peanut butter product recall in the prior year and coffee products Net price realization contributed 5 percentage points to net sales primarily driven by list price increases across the majority of the portfolio partially offset by increased trade spend Segment profit increased 64 8 primarily driven by higher net price realization and favorable volume mix primarily reflecting the recovery from the
Our principal source of funds is cash generated from operations supplemented by borrowings against our commercial paper program and revolving credit facility Total cash and cash equivalents decreased to 62 0 at April 30 2024 compared to 655 8 at April 30 2023
Free cash flow is a non GAAP financial measure used by management to evaluate the amount of cash available for debt repayment dividend distribution acquisition opportunities share repurchases and other corporate purposes
The 35 0 increase in cash provided by operating activities in 2024 was primarily driven by lapping the 70 0 contribution to our U S qualified defined benefit pension plans in the prior year 42 5 of proceeds received from settlement of the interest rate contracts assumed as part of the acquisition of Hostess Brands and higher net income adjusted for noncash items in the current year partially offset by an increase in cash payments for income and other taxes as compared to the prior year and higher working capital requirements in 2024 The cash required to fund working capital increased compared to the prior year primarily driven by an increase in cash for accounts payable due to lower spend and timing of payments and the lapping of the prior year insurance proceeds received related to the
peanut butter product recall These increases in cash requirements were partially offset by the moderation of input cost inflation related to our inventories an increase in cash from trade receivables due to the timing of sales and payments and an increase in accrued liabilities reflecting a payable to Post related to the transition services agreement entered into in connection with the divestiture of certain pet food brands
Cash used for investing activities in 2024 consisted primarily of 3 9 billion related to the acquisition of Hostess Brands including 67 8 of consideration transferred for the cash payment of Hostess Brands employee equity awards and 586 5 in capital expenditures primarily driven by investments in
frozen sandwiches to support the new manufacturing and distribution facilities in McCalla Alabama as well as plant maintenance across our facilities These uses of cash for 2024 were partially offset by proceeds of 466 3 received from the settlement of our equity investment in Post common stock and net proceeds received of 56 3 primarily from the divested
and Canada condiment businesses and a decrease of 18 9 in our derivative cash margin account balances Cash provided by investing activities in 2023 consisted primarily of net proceeds received from the sale of certain pet food brands of 684 7 and a decrease of 37 6
Cash provided by financing activities in 2024 consisted primarily of proceeds from long term debt of 4 3 billion to partially finance the acquisition of Hostess Brands and a net increase in short term borrowings of 578 2 These proceeds were partially offset by the 991 0 repayment of Hostess Brands debt assumed the 800 0 Term Loan prepayment dividend payments of 437 5 purchase of treasury shares of 372 8 and an 86 4 payment to terminate the tax receivable agreement assumed with the acquisition of Hostess Brands Cash used for financing activities in 2023 consisted primarily of dividend payments of 430 2 purchase of treasury shares of 367 5 and a net decrease in short term borrowings of 185 9
As part of ongoing efforts to maximize working capital we work with our suppliers to optimize our terms and conditions which includes the extension of payment terms Payment terms with our suppliers which we deem to be commercially reasonable range from 0 to 180 days We have an agreement with a third party administrator to provide an accounts payable tracking system and facilitate a supplier financing program which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third party financial institution Participating suppliers can sell one or more of our payment obligations at their sole discretion and our rights and obligations to our suppliers are not impacted We have no economic interest in a supplier s decision to enter into these agreements Our rights and obligations to our suppliers including amounts due and scheduled payment terms are not impacted by our suppliers decisions to sell amounts under these arrangements As of April 30 2024 and 2023 384 9 and 414 2 of our outstanding payment obligations respectively were elected and sold to a financial institution by participating suppliers During 2024 and 2023 we paid 1 685 5 and 1 495 2 respectively to a financial institution for payment obligations that were settled through the supplier financing program
We like other food manufacturers are from time to time subject to various administrative regulatory and other legal proceedings arising in the ordinary course of business We are currently a defendant in a variety of such legal proceedings and while we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at April 30 2024 Based on the information known to date with the exception of the matters discussed below we do not believe the final outcome of these proceedings will have a material adverse effect on our financial position results of operations or cash flows
We are defendants in a series of putative class action lawsuits that were transferred to the United States District Court for the Western District of Missouri for coordinated pre trial proceedings The plaintiffs assert claims arising under various state laws for false advertising consumer protection deceptive and unfair trade practices and similar statutes Their claims are premised on allegations that we have misrepresented the number of servings that can be made from various canisters of
coffee on the packaging for those products The outcome and the financial impact of these cases if any cannot be predicted at this time Accordingly no loss contingency has been recorded for these matters as of April 30 2024 and the likelihood of loss is not considered probable or reasonably estimable However if we are required to pay significant damages our business and financial results could be adversely impacted and sales of those products could suffer not only in these locations but elsewhere
peanut butter products and returned to normal levels by the end of 2023 During 2023 and 2022 we recognized total direct costs associated with the recall of approximately 120 0 net of insurance recoveries related to customer returns fees unsaleable inventory and other product recall related costs primarily within our U S Retail Frozen Handheld and Spreads segment There were no significant direct costs recognized during 2024
voluntary recall identifying concerns regarding certain practices and controls at the facility We responded to the Warning Letter with a detailed explanation of our food safety plan and extensive verification activities to prevent contamination in
processes The FDA delivered its Establishment Inspection Report concluding the June 2022 inspection in March 2024 Although the FDA has concluded its inspection other agencies may nonetheless conclude that certain practices or controls were not in compliance with the FDCA or other laws Any potential regulatory action based on such an agency conclusion could result in the imposition of injunctive terms and monetary payments that could have a material adverse effect on our business reputation brand results of operations and financial performance as well as affect ongoing consumer litigation associated with the voluntary recall of
voluntary recall cannot be predicted at this time Accordingly no loss contingency has been recorded for these matters as of April 30 2024 and the likelihood of loss is not considered probable or reasonably estimable
In December 2020 Hostess Brands asserted claims for indemnification against the sellers the Sellers under the terms of a Share Purchase Agreement the Purchase Agreement pursuant to which Hostess Brands acquired Voortman Cookies Limited Voortman The claims were for damages arising out of alleged breaches by the Sellers of certain representations warranties and covenants contained in the Purchase Agreement relating to periods prior to the closing of the acquisition Hostess Brands also submitted claims relating to these alleged breaches under the representation and warranty insurance policy RWI that was purchased in connection with the acquisition In the third quarter of calendar 2022 the RWI insurers paid Hostess Brands 42 5 CAD the RWI coverage limit the Proceeds related to these breaches Per agreement with the RWI insurers we will not be required to return the Proceeds under any circumstances
On November 3 2022 pursuant to the agreement with the RWI insurers Voortman brought claims in the Ontario Canada Superior Court of Justice the Claim related to the breaches against certain of the Sellers The Claim alleges the seller defendants made certain non disclosures and misrepresentations to induce Hostess Brands to overpay for Voortman We are seeking damages of 109 0 CAD representing the amount of the aggregate liability of the Sellers for indemnification under the Purchase Agreement 5 0 CAD in punitive or aggravated damages interest proceedings fees and any other relief the presiding court deems appropriate A portion of any recovery will be shared with the RWI insurers Although we believe that the Claim is meritorious no assurance can be given as to whether we will recover all or any part of the amounts being pursued
In September 2023 we entered into a Term Loan with a group of banks for an unsecured 800 0 term facility Borrowings under the Term Loan bear interest based on the prevailing Secured Overnight Financing Rate SOFR In November 2023 the full amount was drawn on the Term Loan to partially finance the acquisition of Hostess Brands and to pay off the debt assumed as part of the acquisition as discussed in Note 2 Acquisition As of April 30 2024 the 800 0 Term Loan was prepaid in full
In September 2023 we entered into a commitment letter for a 5 2 billion 364 day senior unsecured Bridge Term Loan Credit Facility Bridge Loan that provided committed financing for the acquisition of Hostess Brands as discussed in Note 2 Acquisition No balances were drawn against this facility as the commitment letter was terminated after completion of the Senior Notes offering and drawing on the Term Loan
In October 2023 we completed an offering of 3 5 billion in Senior Notes due November 15 2028 November 15 2033 November 15 2043 and November 15 2053 The net proceeds from the offering were used to partially finance the acquisition of Hostess Brands and pay off the debt assumed as part of the acquisition
We have available a 2 0 billion unsecured revolving credit facility with a group of 11 banks that matures in August 2026 Additionally we participate in a commercial paper program under which we can issue short term unsecured commercial paper not to exceed 2 0 billion at any time The commercial paper program is backed by our revolving credit facility and reduces what we can borrow under the revolving credit facility by the amount of commercial paper outstanding Commercial paper is used as a continuing source of short term financing for general corporate purposes As of April 30 2024 we had 591 0 of short term borrowings outstanding which were issued under our commercial paper program at a weighted average interest rate of 5 48 percent
We are in compliance with all our debt covenants as of April 30 2024 and expect to be for the next 12 months For additional information on our long term debt sources of liquidity and debt covenants see Note 8 Debt and Financing Arrangements
Dividend payments were 437 5 and 430 2 in 2024 and 2023 respectively and quarterly dividends declared per share were 4 24 and 4 08 in 2024 and 2023 respectively The declaration of dividends is subject to the discretion of our Board and depends on various factors such as our net income loss financial condition cash requirements future events and other factors deemed relevant by the Board
On March 2 2023 we entered into a share repurchase plan 10b5 1 Plan established in accordance with Rule 10b5 1 of the Exchange Act in connection with the remaining common shares authorized for repurchase by the Board which was approximately 3 5 million common shares as of April 30 2023 In accordance with the 10b5 1 Plan our designated broker had the authority to repurchase approximately 2 4 million common shares which commenced upon the sale of certain pet food brands on April 28 2023 and expired 45 calendar days after the closure of the transaction In 2024 we repurchased approximately 2 4 million common shares for 362 8 under the 10b5 1 Plan and approximately 1 1 million common shares remain available for repurchase In accordance with
the Inflation Reduction Act a one percent excise tax was applied to share repurchases after December 31 2022 As a result an excise tax of 3 6 was accrued on the repurchased shares during 2024 and included within additional capital in our Consolidated Balance Sheet
In 2023 we repurchased approximately 2 4 million common shares for 358 0 pursuant to the authorizations of the Board and an excise tax of 3 6 was accrued on the repurchased shares All other share repurchases during 2024 and 2023 consisted of shares repurchased from stock plan recipients in lieu of cash payments
On November 7 2023 we acquired Hostess Brands and as a result we issued approximately 4 0 million common shares valued at 450 2 in exchange for the outstanding shares of Hostess Brands common stock to partially fund the acquisition of Hostess Brands The shares issued were based on each outstanding share of Hostess Brands common stock receiving 30 00 per share in cash and 0 03002 shares of our common shares which represented a value of 4 25 based on the closing stock price of our common shares on September 8 2023 the last trading day preceding September 11 2023 the date on which the execution of the Hostess Brands merger agreement was publicly announced For additional information on the acquisition of Hostess Brands see Note 2 Acquisition
frozen sandwiches Construction of this facility began in 2022 with production expected to begin in 2025 The project demonstrates our commitment to meet increasing demand for this highly successful product and deliver on our strategy to focus on brands with the most significant growth opportunities Construction of the facility and production will occur in three phases over multiple years with financial investments and job creation aligning across each of the three phases During the fourth quarter of 2024 property damage was incurred at the new manufacturing facility as a result of an equipment fire Based on our assessment of the damage the financial impact net of the anticipated insurance recovery was not material during 2024 and we expect minimal impact in 2025 Further we do not anticipate a significant delay in beginning production in 2025
Absent any material acquisitions apart from the recent acquisition of Hostess Brands or other significant investments we believe that cash on hand combined with cash provided by operations borrowings available under our revolving credit facility and commercial paper program and access to capital markets will be sufficient to meet our cash requirements for the next 12 months including the payment of quarterly dividends principal and interest payments on debt outstanding and capital expenditures However as a result of the current macroeconomic environment and the recent acquisition we may experience an increase in the cost or the difficulty to obtain debt or equity financing or to refinance our debt in the future We continue to evaluate these risks which could affect our financial condition or our ability to fund operations or future investment opportunities
During 2024 we returned 61 2 of foreign cash to the U S from Canada reflecting intercompany debt repayments and as a result there were no tax impacts As of April 30 2024 total cash and cash equivalents of 38 4 was held by our foreign subsidiaries primarily in Canada
Purchase obligations includes agreements that are enforceable and legally bind us to purchase goods or services which primarily consist of obligations related to normal ongoing purchase obligations in which we have guaranteed payment to ensure availability of raw materials We expect to receive consideration for these purchase obligations in the form of materials and services These purchase obligations do not represent all future purchases expected but represent only those items for which we are contractually obligated Amounts included in the table above represent our current best estimate of payments due Actual cash payments may vary due to the variable pricing components of certain purchase obligations
Our other cash requirements at April 30 2024 primarily included operating and finance lease obligations which consist of the minimum rental commitments under non cancelable operating and finance leases As of April 30 2024 we had total undiscounted minimum lease payments of 212 3 and 12 3 related to our operating and finance leases respectively For additional information see Note 12 Leases
In addition we have other liabilities which consisted primarily of projected commitments associated with our defined benefit pension and other postretirement benefit plans as disclosed in Note 9 Pensions and Other Postretirement Benefits The total liability for our unrecognized tax benefits and tax related net interest at April 30 2024 was 5 5 under Financial Accounting Standards Board FASB Accounting Standards Codification ASC 740
As of April 30 2024 we do not have material off balance sheet arrangements financings or other relationships with unconsolidated entities or other persons also known as variable interest entities Transactions with related parties are in the ordinary course of business and are not material to our results of operations financial condition or cash flows
We use non GAAP financial measures including net sales excluding acquisition divestitures and foreign currency exchange adjusted gross profit adjusted operating income adjusted income adjusted earnings per share and free cash flow as key measures for purposes of evaluating performance internally We believe that investors understanding of our performance is enhanced by disclosing these performance measures Furthermore these non GAAP financial measures are used by management in preparation of the annual budget and for the monthly analyses of our operating results The Board also utilizes certain non GAAP financial measures as components for measuring performance for incentive compensation purposes
Non GAAP financial measures exclude certain items affecting comparability that can significantly affect the year over year assessment of operating results which include amortization expense and impairment charges related to intangible assets special project costs gains and losses on divestitures the change in net cumulative unallocated derivative gains and losses and other infrequently occurring items that do not directly reflect ongoing operating results Income taxes as adjusted is calculated using an adjusted effective income tax rate that is applied to adjusted income before income taxes and reflects the exclusion of the previously discussed items as well as any adjustments for one time tax related activities when they occur While this adjusted effective income tax rate does not generally differ materially from our GAAP effective income tax rate certain exclusions from non GAAP results such as the unfavorable tax impacts associated with the acquisition of Hostess Brands in 2024 and unfavorable permanent tax impacts of the divestiture of certain pet food brands during 2023 can significantly impact our adjusted effective income tax rate
These non GAAP financial measures are not intended to replace the presentation of financial results in accordance with U S GAAP Rather the presentation of these non GAAP financial measures supplements other metrics we use to internally evaluate our business and facilitate the comparison of past and present operations and liquidity These non GAAP financial measures may not be comparable to similar measures used by other companies and may exclude certain nondiscretionary expenses and cash payments
The following table reconciles certain non GAAP financial measures to the comparable GAAP financial measure See page 32 for a reconciliation of net sales adjusted for certain noncomparable items to the comparable GAAP financial measure
B Realized loss on investment in equity securities net includes gains and losses resulting from the change in fair value of our investment in Post common stock and the related equity forward contract which was settled on November 15 2023 For more information see Note 3 Divestitures Note 10 Derivative Financial Instruments and Note 11 Other Financial Instruments and Fair Value Measurements
C Represents the nonrecurring pre tax settlement charge recognized during 2024 related to the acceleration of prior service cost for the portion of the plan surplus to be allocated to plan members within our Canadian defined benefit plans which is subject to regulatory approval before a payout can be made For additional information see Note 9 Pensions and Other Postretirement Benefits
D Adjusted earnings per common share assuming dilution for 2024 and 2023 was computed using the treasury stock method Further in 2023 the weighted average shares assuming dilution differed from our GAAP weighted average common shares outstanding assuming dilution as a result of the anti dilutive effect of our stock based awards which were excluded from the computation of net
The preparation of financial statements in conformity with U S GAAP requires that we make estimates and assumptions that in certain circumstances affect amounts reported in the accompanying consolidated financial statements In preparing these financial statements we have made our best estimates and judgments of certain amounts included in the financial statements giving due consideration to materiality We do not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions related to the accounting policies described below However application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and as a result actual results could differ from these estimates
In order to support our products sold within the U S retail market segments and Sweet Baked Snacks segment various promotional activities are conducted through retailers distributors or directly with consumers including in store display and product placement programs price discounts coupons and other similar activities The costs of these programs are classified as a reduction of sales We regularly review and revise when we deem necessary estimates of costs for these promotional programs based on estimates of what will be redeemed by retailers distributors or consumers These estimates are made using various techniques including historical data on performance of similar promotional programs Differences between estimated expenditures and actual performance are recognized as a change in estimate in a subsequent period During 2024 2023 and 2022 subsequent period adjustments were less than 2 percent of both consolidated pre tax adjusted income and cash provided by operating activities
We account for income taxes using the liability method In the ordinary course of business we are exposed to uncertainties related to tax filing positions and periodically assess the technical merits of these tax positions for all tax years that remain subject to examination based upon the latest information available We recognize a tax benefit when it is more likely than not the position will be sustained upon examination based on its technical merits The tax position is then measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement
We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and may record a valuation allowance if based on all available evidence we determine that it is more likely than not that all or some portion of such assets will not be realized Valuation allowances related to deferred tax assets can be affected by changes in tax laws statutory tax rates and projected future taxable income levels Changes in estimated realization of deferred tax assets would result in an adjustment to income in the period in which that determination is made unless such changes are determined to be an adjustment to goodwill within the allowable measurement period under the acquisition method of accounting
The future tax benefit arising from the net deductible temporary differences and tax carryforwards was 279 8 and 196 8 at April 30 2024 and 2023 respectively In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise we consider all available positive and negative evidence including scheduled reversals of deferred tax liabilities projected future taxable income tax planning strategies and results of operations For those jurisdictions where the expiration date of tax carryforwards or the projected operating results indicate that realization is not likely a valuation allowance has been provided
As of April 30 2024 a portion of our undistributed foreign earnings primarily in Canada is not considered permanently reinvested and an immaterial deferred tax liability has been recognized accordingly For additional information see Note 14 Income Taxes
February 1 and more often if indicators of impairment exist At April 30 2024 the carrying value of goodwill and other intangible assets totaled 14 9 billion compared to total assets of 20 3 billion and total shareholders equity of 7 7 billion If the carrying value of these assets exceeds the current estimated fair value the asset is considered impaired which would result in a noncash impairment charge to earnings that could be material Events and conditions that could result in impairment include a sustained drop in the market price of our common shares increased competition or loss of market share obsolescence product claims that result in a significant loss of sales or profitability over the product life deterioration in macroeconomic conditions declining financial performance in comparison to projected results increased input costs beyond projections or divestitures of significant brands
To test for goodwill impairment we estimate the fair value of each of our reporting units using both a discounted cash flow valuation technique and a market based approach The impairment test incorporates estimates of future cash flows allocations of certain assets liabilities and cash flows among reporting units future growth rates terminal value amounts and the applicable weighted average cost of capital used to discount those estimated cash flows The estimates and projections used in the calculation of fair value are consistent with our current and long range plans including anticipated changes in market conditions industry trends growth rates and planned capital expenditures Changes in forecasted operations and other estimates and assumptions could impact the assessment of impairment in the future
At April 30 2024 goodwill totaled 7 6 billion Goodwill is substantially concentrated within the U S retail market segments and Sweet Baked Snacks segment During 2024 no goodwill impairment was recognized as a result of the evaluations performed throughout the year The estimated fair value exceeded the carrying value by greater than 10 percent for all of our reporting units with a goodwill balance as of the annual test date with the exception of the Sweet Baked Snacks reporting unit for which its fair value exceeded its carrying value by approximately 3 percent A sensitivity analysis was performed for the Sweet Baked Snacks reporting unit assuming a hypothetical 50 basis point decrease in the expected long term growth rate or a hypothetical 50 basis point increase in the weighted average cost of capital and both scenarios independently yielded an estimated fair value for the Sweet Baked Snacks reporting unit below carrying value
The carrying value of the goodwill within the Sweet Baked Snacks segment was 2 4 billion as of April 30 2024 and remains susceptible to future impairment charges due to narrow differences between fair value and carrying value which is attributable to the recent acquisition of Hostess Brands Any significant adverse change in our near or long term projections or macroeconomic conditions could result in future impairment charges which could be material For additional information see Note 7 Goodwill and Other Intangible Assets
Other indefinite lived intangible assets consisting entirely of trademarks are also tested for impairment at least annually and more often if events or changes in circumstances indicate that their carrying values may be below their fair values To test these assets for impairment we estimate the fair value of each asset based on a discounted cash flow model using various inputs including projected revenues an assumed royalty rate and a discount rate Changes in these estimates and assumptions could impact the assessment of impairment in the future
At April 30 2024 other indefinite lived intangible assets totaled 4 3 billion Trademarks that represent our leading brands comprise more than 95 percent of the total carrying value of other indefinite lived intangible assets As of April 30 2024 the estimated fair value was substantially in excess of the carrying value for the majority of these leading brand trademarks and in all instances the estimated fair value exceeded the carrying value by greater than 10 percent with the exception of the other indefinite lived intangible assets within the Sweet Baked Snacks segment as the carrying value approximates fair value due to the recent acquisition of Hostess Brands
Certain statements included in this Annual Report on Form 10 K contain forward looking statements within the meaning of federal securities laws The forward looking statements may include statements concerning our current expectations estimates assumptions and beliefs concerning future events conditions plans and strategies that are not historical fact Any statement that is not historical in nature is a forward looking statement and may be identified by the use of words and phrases such as expect anticipate believe intend will plan and similar phrases
Federal securities laws provide a safe harbor for forward looking statements to encourage companies to provide prospective information We are providing this cautionary statement in connection with the safe harbor provisions Readers are cautioned not to place undue reliance on any forward looking statements as such statements are by nature subject to risks uncertainties and other factors many of which are outside of our control and could cause actual results to differ materially from such statements and from our historical results and experience These risks and uncertainties include but are not limited to those set forth under the caption Risk Factors in this Annual Report on Form 10 K as well as the following
our ability to realize the anticipated benefits including synergies and cost savings related to the Hostess Brands acquisition including the possibility that the expected benefits will not be realized or will not be realized within the expected time period
disruptions or inefficiencies in our operations or supply chain including any impact caused by product recalls political instability terrorism geopolitical conflicts including the ongoing conflicts between Russia and Ukraine and Israel and Hamas extreme weather conditions natural disasters pandemics work stoppages or labor shortages or other calamities
the impact of food security concerns involving either our products or our competitors products including changes in consumer preference consumer litigation actions by the FDA or other agencies and product recalls
our ability to generate sufficient cash flow to continue operating under our capital deployment model including capital expenditures debt repayment to meet our deleveraging objectives dividend payments and share repurchases
the concentration of certain of our businesses with key customers and suppliers including primary or single source suppliers of certain key raw materials and finished goods and our ability to manage and maintain key relationships
Readers are cautioned not to unduly rely on such forward looking statements which speak only as of the date made when evaluating the information presented in this Annual Report on Form 10 K We do not undertake any obligation to update or revise these forward looking statements to reflect new events or circumstances subsequent to the filing in this Annual Report on Form 10 K
The following discussions about our market risk disclosures involve forward looking statements Actual results could differ from those projected in the forward looking statements We are exposed to market risk related to changes in interest rates commodity prices and foreign currency exchange rates
The fair value of our cash and cash equivalents at April 30 2024 approximates carrying value We are exposed to interest rate risk with regard to existing debt consisting of fixed and variable rate maturities Our interest rate exposure primarily includes U S Treasury rates SOFR and commercial paper rates in the U S
From time to time we utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions as well as to manage changes in the fair value of our long term debt At the inception of an interest rate contract the instrument is evaluated and documented for qualifying hedge accounting treatment If the contract is designated as a cash flow hedge the mark to market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income loss and generally reclassified to interest expense in the period during which the hedged transaction affects earnings If the contract is designated as a fair value hedge the contract is recognized at fair value on the balance sheet and changes in the fair value are recognized in interest expense Generally changes in the fair value of the contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings
In November 2023 we terminated interest rate contracts for 42 5 concurrent with the payment of the debt assumed with the acquisition of Hostess Brands The interest rate contracts were designated as cash flow hedges and were used to manage exposure to changes in cash flows associated with variable rate debt
In 2020 we terminated all outstanding interest rate contracts concurrent with the pricing of the Senior Notes due March 15 2030 and March 15 2050 The contracts were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing The termination resulted in a pre tax loss of 239 8 which was deferred and included as a component of accumulated other comprehensive income loss and is being amortized as interest expense over the life of the debt
In 2015 we terminated the interest rate swap on the Senior Notes due October 15 2021 which was designated as a fair value hedge and used to hedge against the changes in the fair value of the debt As a result of the early termination we received 58 1 in cash which included 4 6 of accrued and prepaid interest The gain on termination was recorded as an increase in the long term debt balance and was recognized over the life of the debt as a reduction of interest expense As of 2022 we had fully recognized the gain of 53 5 of which 4 0 was recognized in 2022 For more information on our derivative financial instruments and terminated contracts see Note 10 Derivative Financial Instruments
We use certain raw materials and other commodities that are subject to price volatility caused by supply and demand conditions political and economic variables weather investor speculation and other unpredictable factors To manage the volatility related to anticipated commodity purchases we use derivatives with maturities of generally less than one year We do not qualify commodity derivatives for hedge accounting treatment As a result the gains and losses on all commodity derivatives are immediately recognized in cost of products sold
The estimated fair value was determined using quoted market prices and was based on our net derivative position by commodity for the previous four quarters The calculations are not intended to represent actual losses or gains in fair value that we expect to incur In practice as markets move we actively manage our risk and adjust hedging strategies as appropriate The commodities hedged have a high inverse correlation to price changes of the derivative instrument Thus we would expect that over time any gain or loss in the estimated fair value of its derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures
We have operations outside the U S with foreign currency denominated assets and liabilities primarily denominated in Canadian currency Because we have foreign currency denominated assets and liabilities financial exposure may result primarily from the timing of transactions and the movement of exchange rates
We utilize foreign currency derivatives to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods The contracts generally have maturities of less than one year We do not qualify instruments used to manage foreign currency exchange exposures for hedge accounting treatment Therefore the change in value of these instruments is immediately recognized in cost of products sold
Revenues from customers outside the U S subject to foreign currency exchange represented 5 percent of consolidated net sales during 2024 Thus certain revenues and expenses have been and are expected to be subject to the effect of foreign currency fluctuations and these fluctuations may have an impact on operating results
Management is responsible for establishing and maintaining adequate accounting and internal control systems over financial reporting as such term is defined in Rules 13a 15 f and 15d 15 f under the Securities and Exchange Act of 1934 as amended Our internal control system is designed to provide reasonable assurance that we have the ability to record process summarize and report reliable financial information on a timely basis
Our management with the participation of the principal financial officer and principal executive officer assessed the effectiveness of the internal control over financial reporting as of April 30 2024 In making this assessment we used the criteria established in
On November 7 2023 we completed the acquisition of Hostess Brands As permitted by the SEC we excluded Hostess Brands operations from our assessment of internal control over financial reporting as of April 30 2024 Hostess Brands operations constituted 31 percent of total assets including goodwill and other intangible assets of 5 4 billion as of April 30 2024 and 8 percent of net sales and 6 percent of operating income for the year then ended Hostess Brands operations will be included in our assessment as of April 30 2025
Ernst Young LLP an independent registered public accounting firm audited the effectiveness of our internal control over financial reporting as of April 30 2024 and their report thereon is included on page 50 of this report
issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework the COSO criteria In our opinion The J M Smucker Company the Company maintained in all material respects effective internal control over financial reporting as of April 30 2024 based on the COSO criteria
As indicated in the accompanying Report of Management on Internal Control Over Financial Reporting management s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Hostess Brands Inc which is included in the 2024 consolidated financial statements of the Company and constituted 31 percent of total assets including goodwill and other intangible assets of 5 4 billion as of April 30 2024 and 8 percent of net sales and 6 percent of operating income for the year then ended Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Hostess Brands Inc
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the 2024 consolidated financial statements of the Company and our report dated June 18 2024 expressed an unqualified opinion thereon
The Company s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control Over Financial Reporting Our responsibility is to express an opinion on the Company s internal control over financial reporting based on our audit We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audit in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects
Our audit included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances We believe that our audit provides a reasonable basis for our opinion
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
We have audited the accompanying consolidated balance sheets of The J M Smucker Company the Company as of April 30 2024 and 2023 the related consolidated statements of income comprehensive income shareholders equity and cash flows for each of the three years in the period ended April 30 2024 and the related notes collectively referred to as the consolidated financial statements In our opinion the consolidated financial statements present fairly in all material respects the financial position of the Company at April 30 2024 and 2023 and the results of its operations and its cash flows for each of the three years in the period ended April 30 2024 in conformity with U S generally accepted accounting principles
We also have audited in accordance with the standards of the Public Company Accounting Oversight Board United States PCAOB the Company s internal control over financial reporting as of April 30 2024 based on criteria established in
These financial statements are the responsibility of the Company s management Our responsibility is to express an opinion on the Company s financial statements based on our audits We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud Our audits included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements We believe that our audits provide a reasonable basis for our opinion
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that 1 relates to accounts or disclosures that are material to the financial statements and 2 involved our especially challenging subjective or complex judgments The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements taken as a whole and we are not by communicating the critical audit matter below providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates
As discussed in Note 2 to the consolidated financial statements on November 7 2023 the Company completed the acquisition of Hostess Brands The total purchase consideration in connection with the acquisition was 5 4 billion of which 1 8 billion was allocated to indefinite lived intangible assets and 1 2 billion was allocated to customer and contractual relationships The Company accounted for this acquisition as a business combination
Auditing the Company s purchase price allocation was complex due to the significant estimation required to determine the fair value of one indefinite lived intangible asset and the customer relationship asset These fair value estimates were sensitive to certain significant assumptions As it pertains to the indefinite lived intangible asset these significant assumptions include the revenue attributable to the asset discrete revenue growth rates royalty rate and discount rate Related to the customer relationship asset these significant assumptions include the revenue growth rates EBITDA margin and discount rate Elements of these significant assumptions are forward looking and could be affected by future economic conditions and or changes in consumer preferences
We obtained an understanding evaluated the design and tested the operating effectiveness of management s controls over the purchase price allocation process For example we tested controls over management s review of the significant assumptions described above along with the completeness and accuracy of the data used in these fair value estimates
To test the estimated fair value of the indefinite lived intangible asset and the customer relationship asset we performed audit procedures that included among others assessing fair value methodologies and testing the significant assumptions described above and the underlying data used by the Company in its analysis As it pertains to revenue attributable to the asset and discrete revenue growth rates used to value the indefinite lived intangible asset and revenue growth rates and EBITDA margin used to value the customer relationship we compared the significant assumptions used by management to current industry and economic trends We assessed the historical results of the acquired business and performed sensitivity analyses of significant assumptions to evaluate any hypothetical change in the fair value of the indefinite lived intangible asset and the customer relationship asset that would result from changes in significant assumptions In addition we involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions including the royalty rate and discount rate used to value the indefinite lived intangible asset and discount rate used to value to the customer relationship asset Furthermore we have evaluated the Company s disclosure of the purchase price allocation
Management of The J M Smucker Company is responsible for the preparation integrity accuracy and consistency of the consolidated financial statements and the related financial information in this report Such information has been prepared in accordance with U S generally accepted accounting principles and is based on our best estimates and judgments
We maintain systems of internal accounting controls supported by formal policies and procedures that are communicated throughout the Company There is a program of audits performed by our internal audit staff designed to evaluate the adequacy of and adherence to these controls policies and procedures
Ernst Young LLP an independent registered public accounting firm has audited our financial statements in accordance with the standards of the Public Company Accounting Oversight Board United States Management has made all financial records and related data available to Ernst Young LLP during its audit
Our audit committee comprised of three independent non employee members of the Board of Directors meets regularly with the independent registered public accounting firm and management to review the work of the internal audit staff and the work audit scope timing arrangements and fees of the independent registered public accounting firm The audit committee also regularly satisfies itself as to the adequacy of controls systems and financial records The lead internal auditor of the internal audit department is required to report directly to the audit committee as to internal audit matters
It is our best judgment that our policies and procedures our program of internal and independent audits and the oversight activity of the audit committee work together to provide reasonable assurance that our operations are conducted according to law and in compliance with the high standards of business ethics and conduct to which we subscribe
Common shares no par value Authorized 300 000 000 shares outstanding 106 194 281 at April 30 2024 and 104 398 618 at April 30 2023 net of 44 293 364 and 42 099 112 treasury shares respectively at stated value
The consolidated financial statements include the accounts of the Company its wholly owned subsidiaries and its majority owned investments if any Intercompany transactions and accounts are eliminated in consolidation
The preparation of consolidated financial statements in conformity with U S GAAP requires that we make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes Estimates in these consolidated financial statements include among others estimates of future cash flows associated with assets potential asset impairments purchase price allocation goodwill related to acquisitions and divestitures useful lives and residual values of long lived assets used in determining depreciation and amortization net realizable value of inventories accruals for trade marketing and merchandising programs income taxes and discount rates and other assumptions used in determining defined benefit pension and other postretirement benefit expenses Actual results could differ from these estimates
We consider all short term highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents Based on the short term nature of these assets carrying value approximates fair value There were no cash equivalents within cash and cash equivalents at April 30 2024 and 614 0 at April 30 2023 in the Consolidated Balance Sheets
Most of our revenue is derived from the sale of food and beverage products to food retailers online retailers and foodservice distributors and operators We recognize revenue when obligations under the terms of a contract with a customer have been satisfied This occurs when control of our products transfers which typically takes place upon delivery to or pick up by the customer Amounts due from our customers are classified as trade receivables in the Consolidated Balance Sheets and require payment on a short term basis
Transaction price is based on the list price included in our published price list which is then reduced by the estimated impact of variable consideration such as trade marketing and merchandising programs discounts unsaleable product allowances returns and similar items in the same period that the revenue is recognized To estimate the impact of these costs we consider customer contract provisions historical data and our current expectations
We have trade marketing and merchandising programs that consist of various promotional activities conducted through retailers distributors or directly with consumers including in store display and product placement programs price discounts coupons and other similar activities For additional discussion on these programs refer to Critical Accounting Estimates and Policies within Management s Discussion and Analysis of Financial Condition and Results of Operations
Transportation costs included in cost of products sold relate to the costs incurred to ship our products Distribution costs are included in SD A expenses and primarily relate to the warehousing costs incurred to store our products Total costs recorded within SD A were 267 7 304 5 and 294 1 in 2024 2023 and 2022 respectively
Research and development R D costs are expensed as incurred and are included in SD A in the Statements of Consolidated Income R D costs include expenditures for new and existing product and manufacturing process innovations which are comprised primarily of internal salaries and wages consulting testing and other supplies attributable to time spent on R D activities Other costs include the depreciation and maintenance of research facilities Total R D expense was 49 1 47 3 and 48 8 in 2024 2023 and 2022 respectively
As of April 30 2024 total unrecognized share based compensation cost related to nonvested share based awards including stock options was 41 5 The weighted average period over which this amount is expected to be recognized is 2 0 years
Realized excess tax benefits and tax deficiencies are presented in the Statements of Consolidated Cash Flows as an operating activity and are recognized within income taxes in the Statements of Consolidated Income In 2024 2023 and 2022 the excess tax benefits realized upon exercise or vesting of share based compensation awards were 2 9 1 4 and 1 1 respectively For additional discussion on share based compensation expense see Note 13 Share Based Payments
As required by ASC 260 we computed net income loss per common share basic earnings per share under the two class method for 2024 2023 and 2022 due to certain unvested common shares that contained non forfeitable rights to dividends i e participating securities during the periods Further we compute net income loss per common share assuming dilution diluted earnings per share under either the two class method or the treasury method dependent on which is more dilutive In 2024 and 2022 the computation of diluted earnings per share was more dilutive under the treasury stock method In 2023 we recognized a net loss and as a result excluded the anti dilutive effect of stock based awards from the computation of diluted earnings per share Therefore in 2023 diluted earnings per share was computed under the two class method
Basic earnings per share is calculated by dividing net income loss available to common shareholders by the weighted average number of common shares outstanding during the period Under the two class method net income loss available to common and participating common shareholders is reduced by the net income loss allocated to participating securities which is equal to the amount of dividends declared in the current period and the contractual amount of dividends that must be paid for the current period related to participating securities Under the treasury stock method the diluted earnings per share calculation includes potential common shares assumed to be issued which reflects the potential dilution that would occur if any outstanding options or warrants were exercised or restricted stock becomes vested and includes the if converted method for participating securities if the effect is dilutive For additional information on the earnings per share calculations see Note 6 Earnings Per Share
We offer employee savings plans for domestic and Canadian employees Our contributions under these plans are based on a specified percentage of employee contributions Charges to operations for these plans in 2024 2023 and 2022 were 41 5 41 0 and 40 9 respectively For information on our defined benefit plans see Note 9 Pensions and Other Postretirement Benefits
We account for income taxes using the liability method Accordingly deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled The effect on deferred tax assets and liabilities of a change in the applicable tax rate is recognized in income or expense in the period that the change is enacted A tax benefit is recognized when it is more likely than not to be sustained A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized
ASC 740 also provides guidance on derecognition classification interest and penalties accounting in interim periods and disclosure In accordance with the requirements of ASC 740 uncertain tax positions have been classified in the Consolidated Balance Sheets as noncurrent except to the extent payment is expected
In the normal course of business we extend credit to customers Trade receivables less credit losses reflect the net realizable value of receivables and approximates fair value We account for trade receivables less credit losses in accordance with FASB ASC 326
We evaluate our trade receivables and establish a reserve for credit loss based on a combination of factors When aware that a specific customer has been impacted by circumstances such as bankruptcy filings or deterioration in the customer s operating results or financial position potentially making it unable to meet its financial obligations we record a specific reserve for bad debt to reduce the related receivable to the amount we reasonably believe is collectible We also record reserves for credit loss for all other customers based on a variety of factors including the length of time the receivables are past due historical collection experience and an evaluation of current and projected economic conditions at the balance sheet date Trade receivables are charged off against the reserve for credit losses after we determine that the potential for recovery is remote At April 30 2024 and 2023 the reserve for credit loss was 8 7 and 2 3 respectively We believe there is no concentration of risk with any single customer whose failure or nonperformance would materially affect results other than as discussed in Note 5 Reportable Segments
Inventories are stated at the lower of cost or market with market being defined as net realizable value less costs to sell Cost for all inventories is determined using the first in first out method applied on a consistent basis
The cost of finished products and work in process inventory includes materials direct labor and overhead Work in process is included in finished products in the Consolidated Balance Sheets and was 81 3 and 82 5 at April 30 2024 and 2023 respectively
We do not qualify commodity derivatives or instruments used to manage foreign currency exchange exposures for hedge accounting treatment and as a result the derivative gains and losses are immediately recognized in earnings Although we do not perform the assessments required to achieve hedge accounting for derivative positions we believe all of our derivatives are economic hedges of our risk exposure The exposures hedged have a high inverse correlation to price changes of the derivative instrument Thus we would expect that over time any gain or loss in the estimated fair value of the derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures
From time to time we utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions as well as to manage changes in the fair value of our long term debt At the inception of an interest rate contract the instrument is evaluated and documented for qualifying hedge accounting treatment If the contract is designated as a cash flow hedge the mark to market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income loss and generally reclassified to interest expense in the period during which the hedged transaction affects earnings If the contract is designated as a fair value hedge the contract is recognized at fair value on the balance sheet and changes in the fair value are recognized in interest expense Generally changes in the fair value of the contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings
Property plant and equipment is recognized at cost and is depreciated on a straight line basis over the estimated useful life of the asset 3 to 20 years for machinery and equipment 1 to 7 years for capitalized software costs related to software that we have purchased or has been licensed to us and 5 to 40 years for buildings fixtures and improvements
long lived assets other than goodwill and other indefinite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net undiscounted cash flows estimated to be generated by such assets If such assets are considered to be impaired the impairment to be recognized is the amount by which the carrying amount exceeds the estimated fair value of the assets Assets to be disposed of by sale are recognized as held for sale at the lower of carrying
value or fair value less costs to sell Furthermore determining fair value is subject to estimates of both cash flows and discount rates and different estimates could yield different results There are no events or changes in circumstances of which we are aware of that indicate the carrying value of our long lived assets may not be recoverable at April 30 2024
goodwill and other indefinite lived intangible assets are not amortized but are reviewed at least annually for impairment We conduct our annual test for impairment of goodwill and other indefinite lived intangible assets as of February 1 of each year A discounted cash flow valuation technique is utilized to estimate the fair value of our reporting units and indefinite lived intangible assets We also use a market based approach to estimate the fair value of our reporting units The discount rates utilized in the cash flow analyses are developed using a weighted average cost of capital methodology In addition to the annual test we test for impairment if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit or an indefinite lived intangible asset below its carrying value Further upon disposal of a business a relative fair value analysis is utilized to determine the amount of goodwill to be disposed of for each impacted reporting unit using estimates and assumptions consistent with the annual test Finite lived intangible assets are amortized on a straight line basis over their estimated useful lives For additional information see Note 7 Goodwill and Other Intangible Assets
We maintain funds for the payment of benefits associated with nonqualified retirement plans These funds include investments considered to be available for sale marketable securities At April 30 2024 and 2023 the fair value of these investments was 22 1 and 24 0 respectively and was included in other noncurrent assets in the Consolidated Balance Sheets Included in accumulated other comprehensive income loss at April 30 2024 and 2023 were unrealized pre tax gains of 1 4 and 1 8 respectively
Investments in common stock of entities other than our consolidated subsidiaries in which we own less than 20 percent of an entity s common stock and do not provide significant influence are accounted for as a financial instrument in accordance with FASB ASC 321
As required by ASC 321 the ownership interest in the entity is recognized at fair value based on fixed or determinable prices within current assets in the Consolidated Balance Sheets and any change in fair value is included in other income expense
The net proceeds received from the divestiture of certain pet food brands included approximately 5 4 million shares of Post common stock which represented approximately an 8 percent equity interest in Post as of April 30 2023 The fair value of the investment in Post common stock was 487 8 at April 30 2023 Upon selling the Post common stock on November 15 2023 the investment in equity securities was valued at 460 9 We recognized a realized pre tax loss of 30 7 on the investment with 26 9 and 3 8 of the loss recognized during the years ended April 30 2024 and 2023 respectively which were included in other income expense net in the Statements of Consolidated Income For additional information see Note 10 Derivative Financial Instruments and Note 11 Other Financial Instruments and Fair Value Measurements
Investments in common stock of entities other than our consolidated subsidiaries in which we own between 20 percent and 50 percent of an entity s common stock and are able to exercise significant influence over them are accounted for under the equity method in accordance with FASB ASC 323
Under the equity method the initial investment is recorded at cost and the investment is subsequently adjusted for its proportionate share of earnings or losses including consideration of basis differences resulting from the difference between the initial carrying amount of the investment and the underlying equity in net assets The difference between the carrying amount of the investment and the underlying equity in net assets is primarily attributable to goodwill and other intangible assets
We have a 20 percent equity interest in Mountain Country Foods LLC and approximately a 42 percent equity interest in Numi Inc The carrying amount of these investments is included in other noncurrent assets in the Consolidated Balance Sheets The investments did not have a material impact on the consolidated financial statements or the respective reportable segment to which they relate for the years ended April 30 2024 and 2023
We have an agreement with a third party administrator to provide an accounts payable tracking system and facilitate a supplier financing program which allows participating suppliers the ability to monitor and voluntarily elect to sell our payment obligations to a designated third party financial institution Participating suppliers can sell one or more of our payment obligations at their sole discretion and our rights and obligations to our suppliers are not impacted We have no economic interest in a supplier s decision to enter into these agreements Our rights and obligations to our suppliers including amounts due and scheduled payment terms are not impacted by our suppliers decisions to sell
amounts under these arrangements However our right to offset balances due from suppliers against our payment obligations is restricted by the agreement for those payment obligations that have been sold by our suppliers The payment of these obligations is included in cash provided by operating activities in the Statements of Consolidated Cash Flows Included in accounts payable in the Consolidated Balance Sheets as of April 30 2024 and 2023 were 384 9 and 414 2 of our outstanding payment obligations respectively that were elected and sold to a financial institution by participating suppliers
Assets and liabilities of foreign subsidiaries are translated using the exchange rates in effect at the balance sheet dates while income and expenses are translated using average rates throughout the periods Translation adjustments are reported as a component of accumulated other comprehensive income loss Included in accumulated other comprehensive income loss at April 30 2024 and 2023 were foreign currency losses of 39 2 and 34 3 respectively
which will require registrants to provide certain climate related information in their registration statements and annual reports The rules will require the disclosure of significant effects of severe weather events and other natural conditions as well as amounts related to carbon offsets and renewable energy credits or certificates in the audited financial statements in certain circumstances Disclosure of the actual and potential material impacts of any identified climate related risks on the registrant s strategy business model and outlook will also be required along with the process used to identify assess and manage these risks In addition the rules require disclosure of material climate related targets or goals material Scope 1 and Scope 2 greenhouse gas emissions and the methodology used to calculate those emissions In April 2024 the SEC stayed implementation of the final rule pending the outcome of a judicial review however we do not anticipate any impact to our financial statements upon adoption and continue to evaluate the impacts on our disclosures
ASU 2023 09 will improve the transparency and decision usefulness of income tax disclosures to better assess how operations and related tax risks affect tax rates and future cash flows on an interim and annual basis It will be effective for us on May 1 2025 and can be adopted either on a prospective or retrospective basis We are currently evaluating the impacts of the standard on our financial statements and disclosures
ASU 2023 07 will improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses on an interim and annual basis It will be effective for our annual period beginning May 1 2024 and interim periods beginning May 1 2025 with the option to early adopt at any time prior to the effective dates and will require adoption on a retrospective basis We are currently evaluating the impacts of the standard on our financial statements and disclosures
requiring current reporting about material cybersecurity incidents and annual disclosures on management s processes for assessing identifying and managing material cybersecurity risks the material impacts of cybersecurity threats and previous cybersecurity incidents the Board oversight of cybersecurity risks and management s role and expertise in assessing and managing material cybersecurity risks SEC Release No 33 11216 was effective for us on November 1 2023 and did not have a material impact on our financial statements and disclosures The additional disclosures required are presented in Part I Item 1C in this Annual Report on Form 10 K
which requires new disclosures regarding insider trading policies and procedures the use of Rule 10b5 1 plans by directors and officers and stock option grants issued in close proximity to the release of material nonpublic information SEC Release No 33 11138 was effective for us on May 1 2023 and did not have a material impact on our financial statements and disclosures The additional disclosures required are presented in Part III Item 10 in this Annual Report on form 10 K
The raw materials used in each of our segments are primarily commodities agricultural based products and packaging materials The principal packaging materials we use are plastic glass metal cans caps carton board and corrugate Green coffee peanuts oils and fats flour sugar fruit and other ingredients are obtained from various suppliers The availability quality and costs of many of these commodities have fluctuated and may continue to fluctuate over time partially driven by the elevated commodity and supply chain costs we experienced in 2024 We actively monitor changes in commodity and supply chain costs and to mitigate the rising costs we may be required to implement material
price increases across our business Green coffee along with certain other raw materials is sourced solely from foreign countries and its supply and price is subject to high volatility due to factors such as weather global supply and demand product scarcity plant disease investor speculation geopolitical conflicts including the ongoing conflicts between Russia and Ukraine and Israel and Hamas changes in governmental agricultural and energy policies and regulation and political and economic conditions in the source countries Raw materials are generally available from numerous sources although we have elected to source certain plastic packaging materials for our
dog snacks and liquid coffee from primary or single sources of supply pursuant to long term contracts While availability may vary from year to year we believe that we will continue to obtain adequate supplies and that alternatives to primary or single sourced materials are available We have not historically encountered significant shortages of key raw materials We consider our relationships with key raw material suppliers to be in good standing
cookies and fruit spreads Although steps are taken at all of our manufacturing sites to reduce the likelihood of a production disruption an interruption at a single manufacturing site would result in a reduction or elimination of the availability of some of our products for a period of time
Of our full time employees 27 percent are covered by union contracts at eleven manufacturing locations inclusive of Hostess Brands employees The contracts vary in term depending on location with six contracts expiring in 2025 representing approximately 10 percent of our total employees
On November 7 2023 we completed a cash and stock transaction to acquire Hostess Brands The total purchase consideration in connection with the acquisition was 5 4 billion which reflects an exchange offer of all outstanding shares of Hostess Brands common stock at a price of 34 25 per share consisting of 30 00 in cash and 0 03002 shares of our common shares based on the closing stock price on September 8 2023 that were exchanged for each share of Hostess Brands common stock as of the transaction date
The purchase price included the issuance of approximately 4 0 million of our common shares to Hostess Brands shareholders valued at 450 2 as discussed in Note 17 Common Shares In addition we paid 3 9 billion in cash net of cash acquired and assumed 991 0 of debt from Hostess Brands and 67 8 of an other debt like item reflecting consideration transferred for the cash payment of Hostess Brands employee equity awards New debt of 5 0 billion was borrowed consisting of 3 5 billion in Senior Notes an 800 0 Term Loan and 700 0 of short term borrowings under our commercial paper program to partially fund the transaction and pay off the debt assumed as part of the acquisition For additional information on the financing associated with this transaction refer to Note 8 Debt and Financing Arrangements
cookie brand In addition to its headquarters in Lenexa Kansas the transaction included six manufacturing facilities located in Emporia Kansas Burlington Ontario Chicago Illinois Columbus Georgia Indianapolis Indiana and Arkadelphia Arkansas a distribution facility in Edgerton Kansas and a commercial center of excellence in Chicago Illinois Approximately 3 000 employees transitioned with the business at the close of the transaction
The transaction was accounted for under the acquisition method of accounting and accordingly the results of Hostess Brands operations including 637 3 in net sales and 73 4 in operating income are included within the Sweet Baked Snacks segment for 2024 The operating income for the year ended April 30 2024 includes the recognition of an unfavorable fair value purchase accounting adjustment of 8 3 attributable to the acquired inventory and excludes special project costs recognized within the segment
The purchase price was preliminarily allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition on a provisional basis We determined the estimated fair values based on independent appraisals discounted cash flow analyses quoted market prices and estimates made by management The
Certain estimated fair values for the acquisition including goodwill intangible assets property plant and equipment and income taxes are not yet finalized The purchase price was preliminarily allocated based on information available at the acquisition date and is subject to change as we complete our analysis of the fair values at the date of the acquisition during the measurement period not to exceed one year as permitted under FASB ASC 805
As a result of the acquisition we recognized a total of 2 4 billion of goodwill within the Sweet Baked Snacks segment Of the total goodwill 196 6 was deductible for tax purposes at the acquisition date of which 186 9 remains deductible as of April 30 2024 Goodwill represents the value we expect to achieve through the implementation of operational synergies and growth opportunities as we integrate Hostess Brands into our Company We are evaluating the impact of these anticipated operational synergies and growth opportunities across our reporting units and as a result have not allocated goodwill to our other reporting units as of April 30 2024 however we will complete our evaluation and allocate goodwill as appropriate by the end of the measurement period The goodwill and indefinite lived trademarks resulting from the acquisition are susceptible to future impairment charges Any significant change in our near or long term projections or macroeconomic conditions may result in future impairment charges as the carrying values of goodwill and indefinite lived trademarks approximate estimated fair values
Hostess Brands results of operations are included in our consolidated financial statements from the date of the transaction within our Sweet Baked Snacks segment If the transaction had occurred on May 1 2022 unaudited pro forma consolidated results for 2024 and 2023 would have been as follows
The unaudited pro forma consolidated results are based on our historical financial statements and those of Hostess Brands and do not necessarily indicate the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable period presented The most significant pro forma adjustments relate to the elimination of interest expense associated with acquisition related financing nonrecurring acquisition related costs incurred prior to the close of the transaction amortization of acquired intangible assets and depreciation of acquired property plant and equipment The unaudited pro forma consolidated results do not give effect to the synergies of the acquisition and are not indicative of the results of operations in future periods
pickled onions brands inclusive of certain trademarks Under our ownership these brands generated net sales of 43 8 61 6 and 62 7 in 2024 2023 and 2022 respectively which were included in the International operating segment Final net proceeds from the divestiture were 25 3 inclusive of a working capital adjustment and cash transaction costs We recognized a pre tax loss of 5 7 during 2024 within other operating expense income net in the Statement of Consolidated Income
brand generated net sales of 24 1 48 4 and 47 4 in 2024 2023 and 2022 respectively primarily included in the U S Retail Frozen Handheld and Spreads segment Final net proceeds from the divestiture were 31 6 inclusive of a working capital adjustment and cash transaction costs We recognized a pre tax loss of 6 7 during 2024 within other operating expense income net in the Statement of Consolidated Income
brands as well as the private label pet food business inclusive of certain trademarks and licensing agreements manufacturing and distribution facilities in Bloomsburg Pennsylvania manufacturing facilities in Meadville Pennsylvania and Lawrence Kansas and approximately 1 100 employees who supported these pet food brands Under our ownership these brands generated net sales of 1 5 billion and 1 4 billion in 2023 and 2022 respectively primarily included in the U S Retail Pet Foods segment Final net proceeds from the divestiture were 1 2 billion consisting of 683 9 in cash net of a working capital adjustment and cash transaction costs and approximately 5 4 million shares of Post common stock valued at 491 6 at the close of the transaction We recognized a pre tax loss of 1 0 billion upon completion of this transaction during 2023 within other operating expense income net in the Statement of Consolidated Income During 2024 we finalized the working capital adjustment and transaction costs which resulted in an immaterial adjustment to the pre tax loss Furthermore during 2024 we entered into equity forward derivative transactions under an agreement with an unrelated third party to facilitate the forward sale of the Post common stock All 5 4 million shares of Post common stock were settled for 466 3 under the equity forward contract on November 15 2023 For additional information see Note 10 Derivative Financial Instruments
beverages dedicated manufacturing and distribution facilities in Chico California and Havre de Grace Maryland and approximately 150 employees who supported the natural beverage and grains businesses The transaction did not include
nut butters fruit spreads syrups or applesauce Under our ownership the businesses generated net sales of 106 7 in 2022 primarily included in the U S Retail Frozen Handheld and Spreads segment Final net proceeds from the divestiture were 98 7 inclusive of a working capital adjustment and cash transaction costs We recognized a pre tax gain of 28 3 related to the natural beverage and grains businesses of which 26 7 was recognized during 2022 and the remaining 1 6 was recognized upon finalization of the working capital adjustment in 2023 and is included within other operating expense income net in the Statements of Consolidated Income
On December 1 2021 we sold the private label dry pet food business to Diamond Pet Foods The transaction included dry pet food products sold under private label brands a dedicated manufacturing facility located in Frontenac Kansas and approximately 220 employees who supported the private label dry pet food business The transaction did not include any branded products or our private label wet pet food business Under our ownership the business generated net sales of 62 3 in 2022 included in the U S Retail Pet Foods segment Final net proceeds from the divestiture were 32 9 net of cash transaction costs Upon completion of this transaction during 2022 we recognized a pre tax loss of 17 1 within other operating expense income net in the Statement of Consolidated Income
Special project costs consist primarily of employee related costs and other transition and termination costs related to certain divestiture acquisition integration and restructuring activities Employee related costs include severance retention bonuses and relocation costs Severance costs are generally recognized when deemed probable and estimable retention bonuses are recognized over the estimated future service period of the impacted employees and relocation costs are expensed as incurred Other transition and termination costs include fixed asset related charges contract and lease termination costs professional fees and other miscellaneous expenditures associated with divestiture acquisition integration and restructuring activities With the exception of accelerated depreciation these costs are expensed as incurred These special project costs are reported in cost of products sold other special project costs other debt costs and other income expense net in the Statements of Consolidated Income and are not allocated to segment profit The obligation related to employee separation costs is included in other current liabilities in the Consolidated Balance Sheets
and Canada condiment businesses are anticipated to be approximately 6 0 consisting primarily of employee related and lease termination costs all of which are expected to be cash charges with the majority recognized in 2024 and the remainder to be recognized during the first half of 2025 We incurred 3 9 of employee related costs and 1 6 of other transition and termination costs related to lease termination costs during 2024 The obligation related to severance and retention bonuses was 2 5 at April 30 2024 and is expected to be settled during the first half of 2025
Furthermore we identified opportunities to address certain distribution inefficiencies as a result of the divestiture of certain pet food brands We anticipate incurring approximately 11 0 of costs related to these efforts consisting primarily of other transition and termination charges The majority of these costs are expected to be cash charges and incurred by the end of 2026 with over half of the costs expected to be recognized in 2025 For additional information see Note 3 Divestitures
Total integration costs related to the acquisition of Hostess Brands are anticipated to be approximately 210 0 and include transaction costs employee related costs and other transition and termination charges The majority of the integration costs are expected to be cash charges with most recognized during 2024 The remainder are expected to be incurred by the end of 2026 and are expected to be split between employee related costs and other transition and termination costs
Noncash charges of 3 2 were incurred through April 30 2024 which primarily consisted of accelerated depreciation Transaction costs primarily reflect equity compensation pay outs legal fees and fees related to the Bridge Loan that provided committed financing for the acquisition of Hostess Brands Other transition and termination costs primarily consisted of contract termination charges accelerated depreciation and consulting fees The obligation related to severance and retention bonuses was 28 0 at April 30 2024 For additional information see Note 2 Acquisition
A restructuring program was approved by the Board during 2021 associated with opportunities identified to reduce our overall cost structure optimize our organizational design and support our portfolio reshape The program was further expanded in 2022 to include the costs associated with the divestitures of the private label dry pet food and natural beverage and grains businesses as well as closure of certain production facilities The restructuring activities were considered complete as of April 30 2023 The costs incurred associated with these restructuring activities included other transition and termination costs related to our cost reduction and margin management initiatives inclusive of accelerated depreciation as well as employee related costs For additional information related to the divestiture
During 2022 we completed the transition of liquid coffee production to JDE Peet s and expanded the restructuring program to include certain costs associated with the divestitures of the private label dry pet food and natural beverage and grains businesses as well as the closure of our Ripon Wisconsin production facility to further optimize operations for our U S Retail Frozen Handheld and Spreads business We completed the closure of the Ripon facility during 2023
The obligation related to severance costs and retention bonuses was 1 6 at April 30 2023 and was fully satisfied during the first quarter of 2024 Cumulative noncash charges incurred through April 30 2023 to date were 33 2 and included 10 2 and 18 6 incurred during 2023 and 2022 respectively which primarily consisted of accelerated depreciation
We operate in one industry the manufacturing and marketing of food and beverage products We have four reportable segments U S Retail Coffee U S Retail Frozen Handheld and Spreads U S Retail Pet Foods and Sweet Baked Snacks The presentation of International and Away From Home represents a combination of all other operating segments that are not individually reportable
As disclosed in Note 2 Acquisition we acquired Hostess Brands in a cash and stock transaction on November 7 2023 resulting in the new Sweet Baked Snacks reportable segment for 2024 Further the historical U S Retail Consumer Foods reportable segment has been renamed to U S Retail Frozen Handheld and Spreads however there is no change to the manner in which the segment was previously presented We do not anticipate any impact to our other historical reportable segments as we do not anticipate any changes to the internal manner in which we will manage and report these reportable segments
branded products in all channels With the exception of Sweet Baked Snacks products International and Away From Home includes the sale of all products that are distributed in foreign countries through retail channels as well as domestically and in foreign countries through foodservice distributors and operators e g healthcare operators restaurants educational institutions offices lodging and gaming establishments and convenience stores
Segment profit represents net sales less direct and allocable operating expenses and is consistent with the way in which we manage our segments However we do not represent that the segments if operated independently would report operating profit equal to the segment profit set forth below as segment profit excludes certain expenses such as amortization expense and impairment charges related to intangible assets gains and losses on divestitures change in net cumulative unallocated derivative gains and losses special project costs as well as corporate administrative expenses
Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of segment operating results until the related inventory is sold At that time we reclassify the hedge gains and losses from unallocated derivative gains and losses to segment profit allowing our segments to realize the economic effect of the hedge without experiencing any mark to market volatility We would expect that any gain or loss in the estimated fair value of the derivatives would generally be offset by a change in the estimated fair value of the underlying exposures
The following table reconciles segment profit to income before income taxes and presents total assets total depreciation amortization and impairment charges and total additions to property plant and equipment by segment
Includes special project costs related to certain divestiture acquisition integration and restructuring activities For more information see Note 4 Special Project Costs and Note 8 Debt and Financing Arrangements
Sales to Walmart Inc and subsidiaries amounted to 33 percent of net sales in 2024 and 34 percent of net sales in both 2023 and 2022 These sales are primarily included in our U S retail market segments No other customer exceeded 10 percent of net sales for any year Trade receivables net at April 30 2024 and 2023 included amounts due from Walmart Inc and subsidiaries of 211 7 and 211 5 respectively
We computed basic earnings per share under the two class method for 2024 2023 and 2022 due to certain unvested common shares that contained non forfeitable rights to dividends i e participating securities during these periods Further we computed diluted earnings per share under the two class method and treasury stock method to determine the method that was most dilutive in accordance with FASB ASC 260
In 2024 and 2022 the computation of diluted earnings per share was more dilutive under the treasury stock method as compared to the two class method Therefore the treasury stock method was used In 2023 we recognized a net loss and as a result excluded the anti dilutive effect of stock based awards from the computation of diluted earnings per share Therefore in 2023 diluted earnings per share was computed under the two class method
Amortization expense for finite lived intangible assets was 190 1 205 9 and 222 5 in 2024 2023 and 2022 respectively The weighted average useful lives of the customer and contractual relationships patents and technology and trademarks are 24 years 20 years and 12 years respectively The weighted average useful life of total finite lived intangible assets is
24 years Based on the carrying value of intangible assets subject to amortization at April 30 2024 the estimated amortization expense is 223 3 for 2025 209 0 for 2026 200 9 for 2027 201 9 for 2028 and 172 1 for 2029
As of February 1 2024 we completed the annual impairment review in which goodwill impairment was tested at the reporting unit level for all of our reporting units with goodwill As part of our annual evaluation we did not recognize any impairment charges related to our reporting units or indefinite lived intangible assets The estimated fair value exceeded the carrying value by greater than 10 percent for all our reporting units and indefinite lived intangible assets with the exception of the Sweet Baked Snacks reporting unit for which its fair value exceeded its carrying value by approximately 3 percent as the carrying value approximates estimated fair value due to the recent acquisition of Hostess Brands Any significant adverse change in our near or long term projections or macroeconomic conditions could result in future impairment charges for the
brand within the U S Retail Pet Foods segment primarily driven by the re positioning of this brand within the Pet Foods brand portfolio which led to a decline in the current and long term net sales expectations and the royalty rate used in the valuation analysis This charge was included as a noncash charge in our Statement of Consolidated Income
In September 2023 we entered into a Term Loan with a group of banks for an unsecured 800 0 term facility Borrowings under the Term Loan bear interest on the prevailing SOFR In November 2023 the full amount was drawn on the Term Loan to partially finance the acquisition of Hostess Brands and pay off the debt assumed as part of the acquisition as discussed in Note 2 Acquisition As of April 30 2024 the 800 0 Term Loan was prepaid in full
In September 2023 we entered into a commitment letter for a 5 2 billion Bridge Loan that provided committed financing for the acquisition of Hostess Brands as discussed in Note 2 Acquisition No balances were drawn against this facility as the commitment letter was terminated after completion of the Senior Notes offering and drawing on the Term Loan Included in other debt costs in the Statement of Consolidated Income during the year ended April 30 2024 was 19 5 related to financing fees associated with the Bridge Loan
In October 2023 we completed an offering of 3 5 billion in Senior Notes due November 15 2028 November 15 2033 November 15 2043 and November 15 2053 The Senior Notes included 31 8 of capitalized debt issuance costs and 15 0 of offering discounts to be amortized to interest expense net in the Statements of Consolidated Income over the time period for which the debt is outstanding The net proceeds from the offering were used to partially finance the acquisition of Hostess Brands and pay off the debt assumed as part of the acquisition
In 2022 we prepaid 400 0 in principal of the Senior Notes due March 15 2022 and as a result we recognized a net loss on extinguishment of 6 9 which primarily consisted of a make whole payment and was included in other income expense net in the Statement of Consolidated Income
In 2020 we completed an offering of 800 0 in Senior Notes due March 15 2030 and March 15 2050 Concurrent with the pricing of these Senior Notes we terminated interest rate contracts that were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing The termination resulted in a pre tax loss of 239 8 which was deferred and included as a component of accumulated other comprehensive income loss and is amortized as interest expense over the life of the debt For additional information see Note 10 Derivative Financial Instruments
All of our Senior Notes outstanding at April 30 2024 are unsecured and interest is paid semiannually with no required scheduled principal payments until maturity We may prepay all or part of the Senior Notes at 100 percent of the principal amount thereof together with the accrued and unpaid interest and any applicable make whole amount
We have available a 2 0 billion unsecured revolving credit facility with a group of 11 banks that matures in August 2026 Borrowings under the revolving credit facility bear interest on the prevailing U S Prime Rate SOFR Euro Interbank Offered Rate or Canadian Dealer Offered Rate based on our election Interest is payable either on a quarterly basis or at the end of the borrowing term We did not have a balance outstanding under the revolving credit facility at April 30 2024 or 2023
We participate in a commercial paper program under which we can issue short term unsecured commercial paper not to exceed 2 0 billion at any time The commercial paper program is backed by our revolving credit facility and reduces what we can borrow under the revolving credit facility by the amount of commercial paper outstanding Commercial paper is used as a continuing source of short term financing for general corporate purposes As of April 30 2024 we had 591 0 of short term borrowings outstanding which were issued under our commercial paper program at a weighted average interest rate of 5 48 percent As of April 30 2023 we did not have a balance outstanding under the commercial paper program
Interest paid totaled 170 7 153 1 and 155 2 in 2024 2023 and 2022 respectively This differs from interest expense due to the timing of interest payments capitalized interest the effect of interest rate contracts amortization of debt issuance costs and discounts and payment of other debt fees
We have defined benefit pension plans covering certain U S and Canadian employees Pension benefits are based on the employee s years of service and compensation levels Our plans are funded in conformity with the funding requirements of applicable government regulations
In addition to providing pension benefits we sponsor several unfunded postretirement plans that provide health care and life insurance benefits to certain retired U S and Canadian employees These plans are contributory with retiree contributions adjusted periodically and contain other cost sharing features such as deductibles and coinsurance Covered employees generally are eligible for these benefits when they reach age 55 and have attained 10 years of credited service
To determine the ultimate obligation under our defined benefit pension and other postretirement benefit plans we must estimate the future cost of benefits and attribute that cost to the time period during which each covered employee works Various actuarial assumptions must be made in order to predict and measure costs and obligations many years prior to the settlement date the most significant being the interest rates used to discount the obligations of the plans the long term rates of return on the plans assets and mortality assumptions We along with third party actuaries and investment managers review all of these assumptions on an ongoing basis to ensure that the most reasonable information available is being considered
The following table summarizes the components of net periodic benefit cost and the change in accumulated other comprehensive income loss related to the defined benefit pension and other postretirement plans
We amortize gains and losses for our postretirement plans over the average expected future period of vested service For plans that consist of less than 5 percent of participants that are active average life expectancy is used instead of the average expected future service period
We utilize a spot rate methodology for the estimation of service and interest cost for our plans by applying specific spot rates along the yield curve to the relevant projected cash flows to provide a better estimate of service and interest costs For 2025 expense recognition we will use weighted average discount rates for the U S defined benefit pension plans of 5 43 percent to determine benefit obligation 6 06 percent to determine service cost and 5 38 percent to determine interest cost As of April 30 2024 a 50 basis point decrease in the discount rate assumption would increase the 2025 net periodic benefit cost by approximately 0 1 and the benefit obligation would increase by approximately 14 1 In addition we anticipate using an expected rate of return on plan assets of 4 70 percent for the U S defined benefit pension plans A 50 basis point decrease in the expected rate of return on plan assets assumption would increase the 2025 net periodic benefit cost by approximately 1 3
We use a measurement date of April 30 to determine defined benefit pension and other postretirement benefit plans assets and benefit obligations The following table sets forth the combined status of the plans as recognized in the Consolidated Balance Sheets
In 2021 we transferred obligations related to our Canadian defined benefit pension plan to an insurance company through the purchase of an irrevocable group annuity contract the Canadian Buy Out Contract The group annuity contract was purchased using assets from the pension trust During 2024 we received corporate approval to proceed with distribution of the surplus that remains within the Canadian defined benefit pension plan As a result we recognized a noncash pre tax settlement charge of 3 2 related to the acceleration of prior service cost for the portion of the plan surplus to be allocated to plan members which is subject to regulatory approval before a payout can be made The settlement charge was included within other income expense net in the Statement of Consolidated Income We did not recognize any charges related to the Canadian Buy Out Contract during 2023 and 2022
In October 2023 we approved an amendment to terminate one of our U S qualified defined benefit plans effective as of December 31 2023 We provided notice to participants of the intent to terminate the plan and applied for a determination letter from the IRS Pension obligations will be distributed through a combination of lump sum payments to eligible plan participants and through the purchase of a group annuity contract During the plan year ended December 31 2023 the asset allocation for the plan s assets was adjusted in anticipation of the plan termination Upon settlement of the pension obligations we will reclassify unrecognized actuarial gains or losses currently recorded in accumulated other comprehensive income loss to the Consolidated Statement of Income as a settlement gain or charge As of April 30 2024 we had unrecognized losses related to the plan of 45 6 We anticipate the termination process will be substantially complete by the end of 2025
For 2025 the assumed health care trend rates are 6 30 percent and 4 50 percent for the U S and Canadian plans respectively The rate for participants under age 65 is assumed to decrease to 5 00 percent in 2032 for the U S plan and remain at 4 50 percent for the Canadian plan The health care cost trend rate assumption impacts the amount of the other postretirement benefits obligation and periodic other postretirement benefits cost reported
We employ a total return on investment approach for the defined benefit pension plans assets A mix of equity fixed income and alternative investments is used to maximize the long term rate of return on assets for the level of risk In determining the expected long term rate of return on the defined benefit pension plans assets we consider the historical rates of return the nature of investments the asset allocation and expectations of future investment strategies The actual rate of return was a loss of 2 90 percent and 2 30 percent for the years ended April 30 2024 and 2023 respectively which excludes administrative and investment expenses
Based on our improved funded status and the anticipated termination of one of our U S qualified defined benefit pension plans our current investment policy includes a mix of investments that consist of approximately 80 percent fixed income securities 10 percent equity securities and 10 percent cash and cash equivalents
A This category includes money market holdings with maturities of three months or less and are classified as Level 1 assets Based on the short term nature of these assets carrying value approximates fair value
B This category is invested in a diversified portfolio of common stocks and index funds that primarily invest in U S stocks with broad market capitalization ranges similar to those found in the S P 500 Index and or the various Russell Indices and are traded on active exchanges The Level 1 assets are valued using quoted market prices for identical securities in active markets
C This category is invested primarily in common stocks and other equity securities traded on active exchanges of foreign issuers located outside the U S The fund invests primarily in developed countries but may also invest in emerging markets The Level 1 assets are valued using quoted market prices for identical securities in active markets
D This category is primarily composed of bond funds which seek to duplicate the return characteristics of high quality U S and foreign corporate bonds with a duration range of 10 to 13 years as well as various U S Treasury Separate Trading of Registered Interest and Principal holdings with wide ranging maturity dates These assets are valued using quoted market prices for identical securities in active markets and are classified as Level 1 assets
E This category is composed of a real estate fund whereby the underlying investments are contained in the Canadian market and a common collective trust fund investing in direct commercial property funds The real estate fund and the collective trust fund investing in direct commercial property are classified as Level 2 assets whereby the underlying securities are valued utilizing quoted market prices for identical securities in active markets and based on the quoted market prices of the underlying investments in the common collective trust respectively
F This category was composed of a private equity fund that consisted primarily of limited partnership interests in corporate finance and venture capital funds as well as a private limited investment partnership The fair value estimates of the private equity fund and private limited investment partnership were based on the underlying funds net asset values Furthermore as a practical expedient equivalent to our defined benefit plan s ownership interest in the partners capital a proportionate share of the net assets was attributed and further corroborated by our review The private equity fund and private limited investment partnership were non redeemable and the return of principal was based on the liquidation of the underlying assets In accordance with ASU 2015 07 the private equity fund and private limited investment partnership were removed from the total financial assets measured at fair value and disclosed separately
In 2025 we do not expect to make any contributions to our U S qualified defined benefit pension plans except as required to fund the U S defined benefit plan we plan to terminate which will be equal to the shortfall following the payment of lump sums and purchase of a group annuity contract The amount of the contribution necessary will be dependent on several factors including asset performance economic environment lump sum election percentage and insurance premium pricing among others In addition the timing of the annuity purchase will be dependent on the timing of the regulatory reviews by the IRS as well as other plan termination activities During 2025 we also expect to make direct benefit payments of approximately 8 8 Furthermore we expect the following payments to be made from the defined benefit pension and other postretirement benefit plans 162 1 in 2025 23 2 in 2026 22 6 in 2027 22 3 in 2028 21 9 in 2029 and 112 0 in 2030 through 2034
We participate in one multi employer pension plan the Bakery and Confectionery Union and Industry International Pension Fund Bakery and Confectionery Union Fund 52 6118572 which provides defined benefits to certain union employees During 2024 and 2023 a total of 2 9 and 2 0 was contributed to the plan respectively and we anticipate contributions of 2 8 in 2025
The risks of participating in multi employer pension plans are different from the risks of participating in single employer pension plans For instance the assets contributed to the multi employer plan by one employer may be used to provide benefits to employees of other participating employers and if a participating employer stops contributing to the plan the unfunded obligations of the plan allocable to the withdrawing employer may be the responsibility of the remaining participating employers Additionally if we stop participating in the multi employer pension plan we may be required to pay the plan an amount based on our allocable share of the underfunded status of the plan referred to as a withdrawal liability
The Pension Protection Act of 2006 ranks the funded status of multi employer pension plans depending upon a plan s current and projected funding A plan is in the Red Zone Critical if it has a current funded percentage less than 65 percent A plan is in the Yellow Zone Endangered if it has a current funded percentage of less than 80 percent or projects a credit balance deficit within seven years A plan is in the Green Zone Healthy if it has a current funded percentage greater than 80 percent and does not have a projected credit balance deficit within seven years The zone status is based on the plan s year end not our fiscal year end The zone status is based on information that we received from the plan and is certified by the plan s actuary During calendar year 2023 the Bakery and Confectionery Union Fund was in Red Zone status as the current funding status was 48 50 percent A funding improvement plan or rehabilitation plan has been implemented
The American Rescue Plan Act the ARPA signed into law on March 11 2021 established a special financial assistance program for financially troubled multi employer pension plans Under the ARPA eligible multi employer plans can apply to receive a cash payment in an amount projected by the Pension Benefit Guaranty Corporation PBGC to pay pension benefits through the plan year ending 2051 On March 1 2023 the Bakery and Confectionery Union Fund applied for assistance under the ARPA program After working directly with the PBGC to review and revise assumptions the Bakery and Confectionary Union Fund submitted a revised application for assistance on February 21 2024
We are exposed to market risks such as changes in commodity prices foreign currency exchange rates and interest rates To manage the volatility related to these exposures we enter into various derivative transactions We have policies in place that define acceptable instrument types we may enter into and establish controls to limit our market risk exposure By policy we do not enter into derivative transactions for speculative purposes
We enter into commodity derivatives to manage the price volatility and reduce the variability of future cash flows related to anticipated inventory purchases of key raw materials notably green coffee soybean meal wheat corn and edible oils We also enter into commodity derivatives to manage price risk for energy input costs including diesel fuel and natural gas Our derivative instruments generally have maturities of less than one year
We do not qualify commodity derivatives for hedge accounting treatment and as a result the derivative gains and losses are immediately recognized in earnings Although we do not perform the assessments required to achieve hedge accounting for derivative positions we believe all of our commodity derivatives are economic hedges of our risk exposure
The commodities hedged have a high inverse correlation to price changes of the derivative instrument Thus we would expect that over time any gain or loss in the estimated fair value of its derivatives would generally be offset by an increase or decrease in the estimated fair value of the underlying exposures
We utilize foreign currency derivatives to manage the effect of foreign currency exchange fluctuations on future cash payments primarily related to purchases of certain raw materials and finished goods The contracts generally have maturities of less than one year We do not qualify instruments used to manage foreign currency exchange exposures for hedge accounting treatment
From time to time we utilize derivative instruments to manage interest rate risk associated with anticipated debt transactions as well as to manage changes in the fair value of our long term debt At the inception of an interest rate contract the instrument is evaluated and documented for qualifying hedge accounting treatment If the contract is designated as a cash flow hedge the mark to market gains or losses on the contract are deferred and included as a component of accumulated other comprehensive income loss and generally reclassified to interest expense in the period during which the hedged transaction affects earnings If the contract is designated as a fair value hedge the contract is recognized at fair value on the balance sheet and changes in the fair value are recognized in interest expense Generally changes in the fair value of the contract are equal to changes in the fair value of the underlying debt and have no net impact on earnings
During the first quarter of 2024 we began entering into equity forward derivative transactions under an agreement with an unrelated third party to facilitate the forward sale of the Post common stock We did not qualify the forward sale derivative contract for hedge accounting treatment and as a result derivative gains and losses associated with the economic hedge were immediately recognized in earnings within other income expense net in the Statement of Consolidated Income netting with the change in fair value of the underlying shares All 5 4 million shares of Post common stock were hedged and later settled on November 15 2023 for 466 3 resulting in a pre tax gain of 5 4 during the year ended April 30 2024 For additional information see Note 3 Divestitures
We have elected to not offset fair value amounts recognized for our exchange traded derivative instruments and our cash margin accounts executed with the same counterparty that are generally subject to enforceable netting agreements We are required to maintain cash margin accounts in connection with funding the settlement of our open positions Our cash margin accounts represented collateral received of 1 9 and collateral pledged of 17 0 at April 30 2024 and 2023 respectively and are included in other current assets in the Consolidated Balance Sheets The change in the cash margin accounts is included in other net investing activities in the Statements of Consolidated Cash Flows In the event of default and immediate net settlement of all of our open positions with individual counterparties all of our derivative liabilities would be fully offset by either our derivative asset positions or margin accounts based on the net asset or liability position with our individual
counterparties Cash flows associated with the settlement of derivative instruments are classified in the same line item as the cash flows of the related hedged item which is within operating activities in the Statements of Consolidated Cash Flows
Commodity and foreign currency exchange derivative gains and losses are reported in unallocated derivative gains and losses outside of segment operating results until the related inventory is sold At that time we reclassify the hedge gains and losses from unallocated derivative gains and losses to segment profit allowing our segments to realize the economic effect of the hedge without experiencing any mark to market volatility The following table presents the net change in cumulative unallocated derivative gains and losses
In November 2023 we terminated interest rate contracts for 42 5 concurrent with the payment of the debt assumed with the acquisition of Hostess Brands The interest rate contracts were designated as cash flow hedges and were used to manage exposure to changes in cash flows associated with variable rate debt
In 2020 we terminated all outstanding interest rate contracts concurrent with the pricing of the Senior Notes due March 15 2030 and March 15 2050 The contracts were designated as cash flow hedges and were used to manage our exposure to interest rate volatility associated with the anticipated debt financing The termination resulted in a pre tax loss of 239 8 which was deferred and included as a component of accumulated other comprehensive income loss and is being amortized as interest expense over the life of the debt
Interest expense net as presented in the Statements of Consolidated Income was 264 3 152 0 and 160 9 in 2024 2023 and 2022 respectively The reclassification includes terminated contracts which were designated as cash flow hedges
Other income expense net as presented in the Statements of Consolidated Income was 25 6 14 7 and 19 1 in 2024 2023 and 2022 respectively The reclassification is related to the debt extinguishment during 2022 as discussed in Note 8 Debt and Financing Arrangements
Included as a component of accumulated other comprehensive income loss at April 30 2024 and 2023 were deferred net pre tax losses of 187 1 and 200 7 respectively related to the terminated interest rate contracts The related net tax benefit recognized in accumulated other comprehensive income loss was 44 0 and 47 1 at April 30 2024 and 2023 respectively Approximately 13 6 of the net pre tax loss will be recognized over the next 12 months related to the terminated interest rate contracts
In 2015 we terminated the interest rate swap on the Senior Notes due October 15 2021 which was designated as a fair value hedge and used to hedge against the changes in the fair value of the debt As a result of the early termination we received 58 1 in cash which included 4 6 of accrued and prepaid interest The gain on termination was recorded as an increase in the long term debt balance and was recognized over the life of the debt as a reduction of interest expense As of April 30 2022 we had fully recognized the gain of 53 5 of which 4 0 was recognized in 2022
Financial instruments other than derivatives that potentially subject us to significant concentrations of credit risk consist principally of cash investments short term borrowings and trade receivables The carrying value of these financial instruments approximates fair value Our remaining financial instruments with the exception of long term debt are recognized at estimated fair value in the Consolidated Balance Sheets
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date Valuation techniques are based on observable and unobservable inputs Observable inputs reflect readily obtainable data from independent sources while unobservable inputs reflect our market assumptions
Marketable securities and other investments consist of funds maintained for the payment of benefits associated with nonqualified retirement plans The funds include equity securities listed in active markets municipal obligations valued by a third party using valuation techniques that utilize inputs that are derived principally from or corroborated by observable market data and money market funds with maturities of three months or less Based on the short term nature of these money market funds carrying value approximates fair value As of April 30 2024 our municipal obligations are scheduled to mature as follows 1 5 in 2025 0 8 in 2026 3 8 in 2027 0 4 in 2028 3 4 in 2029 and the remaining 7 3 in 2030 and beyond For additional information see Marketable Securities and Other Investments in Note 1 Accounting Policies
Level 1 commodity and foreign currency exchange derivatives are valued using quoted market prices for identical instruments in active markets Level 2 commodity and foreign currency exchange derivatives are valued using quoted prices for similar assets or liabilities in active markets For additional information see Note 10 Derivative Financial Instruments
The market approach is utilized to measure the fair value of equity securities The investment in equity securities represented our equity interest in Post of approximately 8 percent as of April 30 2023 which was valued using the trading value of Post common stock The investment in equity securities was valued at 460 9 on the settlement date As a result we recognized a realized pre tax loss of 30 7 on the investment of which 26 9 and 3 8 was recognized during 2024 and 2023 respectively and was included in other income expense net in the Statements of Consolidated Income For additional information see Investment in Equity Securities in Note 1 Accounting Policies and Note 3 Divestitures
business included the impact of an allocation of 11 5 of goodwill primarily in the U S Retail Frozen Handheld and Spreads segment which was determined based on a relative fair value analysis The impact of the goodwill disposed was included in the noncash pre tax loss on the divestiture in our Statement of Consolidated Income Furthermore we acquired Hostess Brands on November 7 2023 and as a result the underlying assets acquired and liabilities assumed were adjusted to their estimated fair values at the date of acquisition which was determined based on independent appraisals discounted cash flow analyses quoted market prices and estimates made by management
During 2023 we recognized a loss on divestiture in our Statement of Consolidated Income related to the divestiture of certain pet food brands The loss on divestiture included the impact of an allocation of 790 3 of goodwill primarily in the U S Retail Pet Foods segment which was determined based on a relative fair value analysis The impact of the goodwill disposed was included in the noncash pre tax loss on the divestiture in our Statement of Consolidated Income We recognized an impairment charge of 150 4 during 2022 related to the divested
We lease certain warehouses manufacturing facilities office space equipment and vehicles primarily through operating lease agreements We have elected to not recognize leases with a term of 12 months or less in the Consolidated Balance Sheets Instead we recognize the related lease expense on a straight line basis over the lease term
Although the majority of our right of use asset and lease liability balances consist of leases with renewal options these optional periods do not typically impact the lease term as we are not reasonably certain to exercise them Certain leases also include termination provisions or options to purchase the leased property Since we are not reasonably certain to exercise these types of options minimum lease payments do not include any amounts related to these termination or purchase options Our lease agreements generally do not contain residual value guarantees or restrictive covenants that are material
We determine if an agreement is or contains a lease at inception by evaluating whether an identified asset exists that we control over the term of the arrangement A lease commences when the lessor makes the identified asset available for our use We generally account for lease and non lease components as a single lease component Minimum lease payments do not include variable lease payments other than those that depend on an index or rate
Because the interest rate implicit in the lease cannot be readily determined for the majority of our leases we utilize our incremental borrowing rate to present value lease payments using information available at the lease commencement date We consider our credit rating and the current economic environment in determining this collateralized rate As of April 30 2024 we have entered into a lease commitment related to a Canadian corporate office for which the lease has not yet commenced as of that date The lease will begin during the third quarter of 2025 and upon commencement we expect to recognize a right of use asset and lease liability of approximately 1 9 in the Condensed Consolidated Balance Sheet
We provide for equity based incentives to be awarded to key employees and non employee directors Currently these incentives consist of restricted shares restricted stock units which may also be referred to as deferred stock units performance units and stock options During 2024 2023 and 2022 these awards were administered through the 2020 Equity and Incentive Compensation Plan the 2020 Plan which was approved by our shareholders in August 2020 The previous 2010 Equity and Incentive Compensation Plan the 2010 Plan expired and the 2020 Plan became effective in November 2020 at which time the common shares remaining available for issuance under the 2010 Plan were transferred to the 2020 Plan During 2021 awards were administered through the 2010 Plan and the 2020 Plan Awards under these plans may be in the form of stock options stock appreciation rights restricted shares restricted stock units performance shares performance units incentive awards and other share based awards and they may be granted to our non employee directors consultants officers and other employees Deferred stock units granted to non employee directors vest immediately and along with dividends credited on those deferred stock units are paid out in the form of common shares upon termination of service as a non employee director At April 30 2024 there were 3 740 981 shares available for future issuance under the 2020 Plan
Under the 2020 Plan we have the option to settle share based awards by issuing common shares from treasury issuing new Company common shares or issuing a combination of common shares from treasury and new Company common shares
Under the 2020 Plan we granted 84 568 113 970 and 152 971 stock options during 2024 2023 and 2022 respectively Stock options granted in 2024 2023 and 2022 vest ratably over a period of three years The exercise price of all stock options granted was equal to the market value of the shares on the date of grant and all stock options granted and outstanding have a contractual term of 10 years
based on consideration of both historical and implied volatilities The expected life of a stock option represents the period from the grant date through the expected exercise date of the option This was calculated using a simplified method whereby the midpoint between the vesting date and the end of the contractual term is utilized to compute the expected term
The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the stock option The total intrinsic value for both stock options outstanding and exercisable was 1 2 at April 30 2024 with an average remaining contractual term of 5 7 years and 5 8 years respectively The total intrinsic value of stock options exercised during 2024 2023 and 2022 was 0 1 8 6 and 3 6 respectively The closing market price of our common stock on the last trading day of 2024 was 114 85 per share The stock options granted during 2024 have a weighted average grant date fair value of 33 94 per option
Compensation cost related to stock options is recognized ratably over the service period from the grant date through the end of the requisite service period During 2024 2023 and 2022 we recognized compensation cost of 2 8 3 1 and 3 0 respectively The annual tax benefit related to the stock option expense was 0 7 for 2024 2023 and 2022 As of April 30 2024 we had unrecognized compensation cost of 2 9 related to the stock options that were granted in 2024 2023 and 2022
The weighted average grant date fair value of equity awards other than stock options that vested in 2024 2023 and 2022 was 36 5 30 6 and 21 7 respectively The weighted average grant date fair value of restricted shares deferred stock units and performance units is the average of the high and the low share price on the date of grant The vesting date fair value of equity awards other than stock options that vested in 2024 2023 and 2022 was 46 9 36 2 and 24 0 respectively The following table summarizes the weighted average fair values of the equity awards granted
The restricted shares and deferred stock units granted in 2024 2023 and 2022 under our new long term incentive compensation program vest ratably over three years from the date of grant The performance units granted in 2024 2023 and 2022 vest three years from the date of grant and are converted to common shares upon vesting based on the performance achieved during the service period The performance goal for the performance units is based on adjusted earnings per share and return on invested capital targets Dividend equivalents are accumulated on the performance units from the date of grant but participants only receive payment if the awards vest
The income tax expense of 252 4 for 2024 includes unfavorable permanent and deferred tax impacts associated with the acquisition of Hostess Brands The income tax expense of 82 1 for 2023 includes unfavorable permanent tax impacts associated with the sale of certain pet food brands The income tax expense of 212 1 for 2022 includes unfavorable deferred tax impacts of an internal legal entity simplification
We are a voluntary participant in the Compliance Assurance Process CAP program offered by the IRS and are currently under a CAP examination for the tax years ended April 30 2023 April 30 2024 and April 30 2025 During 2024 the IRS concluded the CAP examinations for the 2019 through 2022 tax years The tax years prior to 2020 are no longer subject to U S federal tax examination under the statute of limitations With limited exceptions we are no longer subject to examination for state local and foreign jurisdictions for the tax years prior to 2020
As part of the acquisition of Hostess Brands we assumed a tax receivable agreement payable to C Dean Metropoulos and entities under his control Subsequent to the acquisition we terminated all future payments under the tax receivable agreement in exchange for a cash payment of 86 4 which was included within financing activities in the Statement of Consolidated Cash Flows for the year ended April 30 2024
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting The following table summarizes significant components of our deferred tax assets and liabilities
As of April 30 2024 we have determined that a portion of our undistributed earnings in Canada is not permanently reinvested resulting in the recognition of an immaterial deferred tax liability Deferred income taxes have not been provided on approximately 31 9 of the unremitted earnings of our foreign subsidiaries primarily Canada that are determined to be permanently reinvested the tax effects of which are immaterial
The components of accumulated other comprehensive income loss including the reclassification adjustments for items that are reclassified from accumulated other comprehensive income loss to net income loss are shown below
The reclassification from accumulated other comprehensive income loss is primarily composed of deferred gains losses related to terminated interest rate contracts which were reclassified to interest expense net For additional information see Note 10 Derivative Financial Instruments
The reclassification from accumulated other comprehensive income loss to other income expense net is composed of settlement and curtailment activity and amortization of net losses and prior service costs For additional information see Note 9 Pensions and Other Postretirement Benefits
We like other food manufacturers are from time to time subject to various administrative regulatory and other legal proceedings arising in the ordinary course of business We are currently a defendant in a variety of such legal proceedings and while we cannot predict with certainty the ultimate results of these proceedings or potential settlements associated with these or other matters we have accrued losses for certain contingent liabilities that we have determined are probable and reasonably estimable at April 30 2024 Based on the information known to date with the exception of the matters discussed below we do not believe the final outcome of these proceedings will have a material adverse effect on our financial position results of operations or cash flows
We are defendants in a series of putative class action lawsuits that were transferred to the United States District Court for the Western District of Missouri for coordinated pre trial proceedings The plaintiffs assert claims arising under various state laws for false advertising consumer protection deceptive and unfair trade practices and similar statutes Their claims are premised on allegations that we have misrepresented the number of servings that can be made from various canisters of
coffee on the packaging for those products The outcome and the financial impact of these cases if any cannot be predicted at this time Accordingly no loss contingency has been recorded for these matters as of April 30 2024 and the likelihood of loss is not considered probable or reasonably estimable However if we are required to pay significant damages our business and financial results could be adversely impacted and sales of those products could suffer not only in these locations but elsewhere
peanut butter products and returned to normal levels by the end of 2023 During 2023 and 2022 we recognized total direct costs associated with the recall of approximately 120 0 net of insurance recoveries related to customer returns fees unsaleable inventory and other product recall related costs primarily within our U S Retail Frozen Handheld and Spreads segment There were no significant direct costs recognized during 2024
voluntary recall identifying concerns regarding certain practices and controls at the facility We responded to the Warning Letter with a detailed explanation of our food safety plan and extensive verification activities to prevent contamination in
peanut butter products In addition we strengthened our already stringent quality processes The FDA delivered its Establishment Inspection Report concluding the June 2022 inspection in March 2024 Although the FDA has concluded its inspection other agencies may nonetheless conclude that certain practices or controls were not in compliance with the FDCA or other laws Any potential regulatory action based on such an agency conclusion could result in the imposition of injunctive terms and monetary payments that could have a material adverse effect on our business reputation brand results of operations and financial performance as well as affect ongoing consumer litigation associated with the voluntary recall of
voluntary recall cannot be predicted at this time Accordingly no loss contingency has been recorded for these matters as of April 30 2024 and the likelihood of loss is not considered probable or reasonably estimable
In December 2020 Hostess Brands asserted claims for indemnification against the Sellers under the terms of the Purchase Agreement pursuant to which Hostess Brands acquired Voortman The claims were for damages arising out of alleged breaches by the Sellers of certain representations warranties and covenants contained in the Purchase Agreement relating to periods prior to the closing of the acquisition Hostess Brands also submitted claims relating to these alleged breaches under the RWI that was purchased in connection with the acquisition In the third quarter of calendar 2022 the RWI insurers paid Hostess Brands 42 5 CAD the RWI coverage limit related to these breaches Per agreement with the RWI insurers we will not be required to return the Proceeds under any circumstances
On November 3 2022 pursuant to the agreement with the RWI insurers Voortman brought the Claim related to the breaches against certain of the Sellers The Claim alleges the seller defendants made certain non disclosures and misrepresentations to induce Hostess Brands to overpay for Voortman We are seeking damages of 109 0 CAD representing the amount of the aggregate liability of the Sellers for indemnification under the Purchase Agreement 5 0 CAD in punitive
or aggravated damages interest proceedings fees and any other relief the presiding court deems appropriate A portion of any recovery will be shared with the RWI insurers Although we believe that the Claim is meritorious no assurance can be given as to whether we will recover all or any part of the amounts being pursued
On March 2 2023 we entered into the 10b5 1 Plan established in accordance with Rule 10b5 1 of the Exchange Act in connection with the remaining common shares authorized for repurchase by the Board which was approximately 3 5 million common shares as of April 30 2023 In accordance with the 10b5 1 Plan our designated broker had the authority to repurchase approximately 2 4 million common shares which commenced upon the sale of certain pet food brands on April 28 2023 and expired 45 calendar days after the closure of the transaction In 2024 we repurchased approximately 2 4 million common shares for 362 8 under the 10b5 1 Plan and approximately 1 1 million common shares remain available for repurchase as of April 30 2024 In accordance with the Inflation Reduction Act a one percent excise tax was applied to share repurchases after December 31 2022 As a result an excise tax of 3 6 was accrued on the repurchased shares during the first quarter of 2024 and included within additional capital in our Consolidated Balance Sheet
In 2023 we repurchased approximately 2 4 million common shares for 358 0 pursuant to the authorizations of the Board and an excise tax of 3 6 was accrued on the repurchased shares All other share repurchases during 2024 and 2023 consisted of shares repurchased from stock plan recipients in lieu of cash payments
On November 7 2023 we acquired Hostess Brands and as a result we issued approximately 4 0 million common shares valued at 450 2 in exchange for the outstanding shares of Hostess Brands common stock to partially fund the acquisition of Hostess Brands The shares issued were based on each outstanding share of Hostess Brands common stock receiving 30 00 per share in cash and 0 03002 shares of our common shares which represented a value of 4 25 based on the closing stock price of our common shares on September 8 2023 the last trading day preceding September 11 2023 the date on which the execution of the Hostess Brands merger agreement was publicly announced For additional information on the acquisition of Hostess Brands see Note 2 Acquisition
Management including the principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a 15 e or 15d 15 e under the Exchange Act as of April 30 2024 the Evaluation Date Based on that evaluation the principal executive officer and principal financial officer have concluded that as of the Evaluation Date our disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that we file or submit under the Exchange Act is 1 recorded processed summarized and reported within the time periods specified in SEC rules and forms and 2 accumulated and communicated to management including the chief executive officer and chief financial officer as appropriate to allow timely decisions regarding required disclosure
There were no changes in internal control over financial reporting that occurred during the fourth quarter ended April 30 2024 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting except as noted below
On November 7 2023 we acquired Hostess Brands as discussed in Note 2 Acquisition in Part II Item 8 in this Annual Report on Form 10 K As part of the purchase price allocation process procedures were performed to validate the assets acquired and liabilities assumed including existence testing and a preliminary valuation of the tangible and intangible assets acquired We are currently integrating Hostess Brands into our operations and internal control processes and as permitted by the SEC rules and regulations for newly acquired businesses we have excluded Hostess Brands from our assessment of the effectiveness of our internal controls over financial reporting of April 30 2024 Hostess Brands constituted 6 267 1 of our consolidated total assets as of April 30 2024 For the year then ended Hostess Brands net sales was 637 3 and operating
income was 73 4 which excludes special project costs recognized within the segment Hostess Brands will be included in management s evaluation of internal control over financial reporting as of April 30 2025
Management s report on internal control over financial reporting and the attestation report of our independent registered public accounting firm are included on pages 49 and 50 of this Annual Report on Form 10 K respectively
The information required by this Item as to the directors of the Company the Audit Committee the Audit Committee financial expert and compliance with Section 16 a of the Exchange Act is incorporated herein by reference to the information set forth under the captions Election of Directors Corporate Governance Board and Committee Meetings and Ownership of Common Shares in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 14 2024 The information required by this Item as to the executive officers of the Company is incorporated herein by reference to Part I Item 1 in this Annual Report on Form 10 K
The information required by this Item as to the Company s Insider Trading and Disclosure Policy is incorporated herein by reference to the information set forth under the caption Description of Compensation Policies and Agreements with Executive Officers Insider Trading Arrangements and Policies in our definitive
The Board has adopted a Code of Conduct last revised April 2022 which applies to our directors principal executive officer and principal financial and accounting officer The Board has adopted charters for each of the Audit Compensation and People and Nominating Governance and Corporate Responsibility Committees and has also adopted Corporate Governance Guidelines Copies of these documents are available on our website investors jmsmucker com governance documents
The information required by this Item is incorporated herein by reference to the information set forth under the captions Executive Compensation Board and Committee Meetings and Compensation Committee Interlocks and Insider Participation in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 14 2024
The information required by this Item is incorporated herein by reference to the information set forth under the captions Ownership of Common Shares and Equity Compensation Plan Information in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 14 2024
The information required by this Item is incorporated herein by reference to the information set forth under the captions Corporate Governance and Related Party Transactions in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 14 2024
The information required by this Item is incorporated herein by reference to the information set forth under the captions Service Fees Paid to the Independent Registered Public Accounting Firm and Audit Committee Pre Approval Policies and Procedures in our definitive Proxy Statement for the Annual Meeting of Shareholders to be held on August 14 2024
Revolving Credit Agreement dated as of August 19 2021 by and among The J M Smucker Company Smucker Foods of Canada Corp Bank of America N A as Administrative Agent and the several financial institutions and U S subsidiaries of the Company from time to time party thereto
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized
Pursuant to the requirements of the Securities Exchange Act of 1934 this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated
The undersigned by signing her name hereto does sign and execute this report pursuant to the powers of attorney executed by the above named officers and directors of the registrant which are being filed herewith with the Securities and Exchange Commission on behalf of such officers and directors

Company Name	J M SMUCKER Co Vist SEC web-site
Category	CANNED, FRUITS, VEG & PRESERVES, JAMS & JELLIES
Trading Symbol	SJM